Market waits for Toll to raise ante if Macquarie emerges

Patrick Corp and Toll Holding shares were trading steady this morning (Monday, May 8) as both companies wait for Macquarie Bank to pitch its expected $9 per share cash counter bid for Patrick, just days out from the close of Toll’s bid on Friday. Market analysts believe that Toll will launch a revised offer of up to 60 cents a share more, rather than see its share price languish on lack of growth prospects without Patrick. "Without it, Toll is an $11 stock," an analyst said. Toll was at $13.32 this morning, with Patrick down six cents at $9.07. Toll at the weekend leaked substantial details of the Macquarie plan for Patrick, in order to launch a ferocious attack on it. Toll said Macquarie was raising $3.2bn in debt secured against Patrick’s container terminals, and $3bn in new equity from fund managers. Singapore’s PSA would take 50% of Patrick’s container terminals business, and Linfox would take a 20% stake in the new overall Patrick organization, Toll said. The plan also assumes Patrick’s Chris Corrigan and Peter Scanlon will inject $150m of their own into the deal, with Mr Corrigan staying on as managing director. Macquarie will also put $150m into the deal. The Patrick business, which Macquarie would be buying for 8.5 times earnings before interest, tax, depreciation and amortisation (ebitda), will then be refloated in six months in an initial public offer for around 11 times ebitda, according to Toll’s version of the plan. Toll’s managing director, Paul Little, said the company would initially seek to enforce legally Mr Scanlon and Mr Corrigan’s commitment to accept the Toll bid, and so prevent them from negotiating with Macquarie if an offer came. However, Patrick has quickly issued statements clarifying that the Patrick board accept the Toll offer "subject to no higher offer" being received. Mr Little also said the Macquarie offer, to be based on a scheme of arrangement, would take months to execute and would be vulnerable to business downturn and interest rate changes in that time. Macquarie also had no regulator approval for PSA to buy into the terminals, or for Linfox to buy into the new Patrick company, he said. The Macquarie deal would almost certainly lead to the break-up of the Pacific National joint venture. Mr Little said that by accepting the Toll offer, investors would own a stronger entity than "a Patrick&#47Linfox entity owning only half a highly leveraged ports business and facing Toll as a competitor". Mr Little saved most of his ire for Macquarie, however, saying it had launched a "con job" which would earn it $400m in fees, while the investors carried all the downside risk. Toll’s scrip-based offer will get a substantial free kick from re-rating upwards once Toll reaches 50.1% control, automatically increasing the bid’s value to Patrick shareholders. But Toll’s problem now is that each time it raises the cash offer of its bid, it will depress the value of its shares. An analyst said that for Toll to get its offer over $9, it will need to add 72 cents but at the risk of seeing its own scrip fall by almost 90 cents. Toll could also find it difficult to build a blocking stake in Patrick by making its offer unconditional and not waiting until it gets to 50.1%, because of undertakings to the Australian Competition and Consumer Commission on conditions in the bid. Macquarie’s scheme of arrangement is needed because of the complexity of the deal, with 100% control of Patrick needed to sell assets to PSA, for example.

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