Focus on rivals' future, as ACCC sets down the new shape of Australia's transport industry

Focus on rivals’ future, as ACCC sets down the new shape of Australia’s transport industry

Analysts say the next significant date for Toll will be late February when it will announce its half-yearly results. This will indicate how well Toll is going in achieving the strong results for 2006 and 2007 it forecast in its bidder statement for Patrick. Toll has now gone without a major acquisition to boost its share price since New Zealand’s TranzRail in mid-2003, and the Patrick bid was intended to culminate its takeover-driven strategy. In this morning'[s trading, Patrick was up 13c to $6.88, while Toll was down 58c to $12.12. Toll still has the rearguard option of pushing ahead with its bid for Patrick, and consequently being taken to the Federal Court where the burden of proof will shift to the ACCC. Alternatively, it could massively restructure its offer to the ACCC by selling-off a major share in Pacific National, for example. Even before yesterday’s sweeping rejection, the signs did not bode well for the acquisition. All published pronouncements by the ACCC on the waterfront and logistics over the last two years &#8211 two annual stevedoring reports, its decision on FCL, and the November 2005 issues paper on the Toll bid &#8211 showed unmistakable concern over vertical integration in the transport chain and its potential abuse. Though rail was an important issue, Toll also chose not to answer a list of broad questions from the ACCC over integration of terminals with domestic and international logistics. Though the ACCC now believes that vertical integration is inevitable in the transport industry, its response is to ensure at least two rival players, not a single operator in an uncatchable position, have control of bottleneck assets. Toll had sought such a position by taking half the ports and the lion’s share of interstate rail. The ACCC’s decision is a landmark, which effectively draws up the future shape of the Australian transport industry. This regulatory line will eventually constrain Patrick’s future too. For the immediate purpose of fighting off Toll, Patrick was able to play on the ACCC’s concerns by resurrecting its own failed bid for FCL – a direct challenge to Toll when it was launched last May, but knocked back by the ACCC. How it replays the FCL with the ACCC might depend on the other major question: what happens to the main blocker in that deal, Pacific National? Patrick is seeking damages not dissolution for Pacific National in its court case over the bitterly disputed Toll North deal. However, it is understood that the future Patrick proposal for FCL assumes some structural solution to Pacific National The ports business is currently hot worldwide, with P&#38O in play, and possible new bidders for Patrick alerted by the Australian battle and the valuations issued by Patrick in its defence. There is also media speculation that Toll could now look at P&#38O in Australia. However both DP World and PSA are both offering over $8bn in cash for all of the UK ports group and will want a hefty premium to on-sell the Australian assets &#8211 on the unlikely assumption that they consider Australia non-core to P&#38O. Though the ACCC would bless another foreign owner controlling P&#38O in Australia – as it did yesterday for DP World – Toll would also run into some of the same barriers. The losing bidder could make an offer for Patrick, though it would not give the worldwide spread that both PSA and DP World are clearly looking for.

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