Toll control will dilute rail and port stakes says Patrick

<p>Yesterday’s (March 22) refreshed bid by Toll Holdings for Patrick Corp adds up to a billion to the price it is willing to pay — but Patrick claims that a merger will still leave its shareholders with seriously diluted interests in the strategic port and rail assets. </p> <p>The new scrip and cash offer, valued at $7.52 based on last Friday’s (March 17) Toll close of $14.05, also fell short of the $8 levels where Patrick has been trading and where market expectations have been sitting. </p> <p>Toll’s promises to the regulators to divest 50% of the pair’s Pacific National rail joint venture, will see Patrick shareholders’s stake in Pacific National drop from 50% to 23.5%. </p> <p>Likewise, Patrick shareholders’s interest in a valuable ports business would drop from 100% to 47%, the company said.</p> <p>"Patrick shareholders are being invited to dilute their interests in Patrick’s valuable businesses and take a significant interest in a very expensive local, road based transport business", the company said, in a clear riposte to Toll’s accusations that Patrick’s defensive tactics, such as splitting Pacific National into two, are "value destructive".</p> <p>Analysts noted that Toll described its offer as "full and fair", though not "final" with expectation that more is to come. </p> <p>Toll boss Paul Little was playing it both ways yesterday, saying that Patrick’s institutional shareholders wanted the "deal to go ahead, but not to pay too much". </p> <p>Other analysts said the rerating of Toll shares would make a rise in the offer "a self-fulfilling prophecy", with Toll’s Paul Little saying yesterday that an average of analysts forward views puts the Toll scrip nearly $2 more at $15.82.</p> <p>Toll finished this morning’s trading up 11 cents at $14.16, with Patrick up one cent at $8.16.</p> <p>Mr Little said the about-turn by the Australian competition regulators to approve Toll’s bid and removing the condition of a 90% acceptance, will speed up the so far thin level of take-up.</p> <p>Mr Little was keen to deflect any fresh outside interest yesterday. He said other potential bidders among global logistics companies had "trawled over" Patrick, but added his belief that the company was too complex a set of assets to control from offshore.</p> <p>He said that Patrick had also been seeking other suitors overseas, but added that the time for a fresh bidder to emerge would have been in January, when the regulators had initially knocked Toll off the table. </p> <p>Mr Little claimed that Toll was offering 20.8 times Patrick’s 2005 earnings before interest, tax and depreciation against 15.4 times in other recent port deals, which he said was generous given that only 42% of Patrick’s business was port related. </p> <p>However, Dubai paid over 33 times P&#38O’s expected earnings for the 2006 year, though this was seen as an exceptional bid from a state owned entity, despite world trade growth peaking last year, a peak in P&#38O’s profit growth in India, and higher costs in its UK developments. </p> <p>Mr Little also claimed that Patrick was "fabricating" a rival domestic strategy based on taking over FCL and possibly trucking major Linfox. He said yesterday that "they cannot transact the Linfox deal to frustrate the Toll takeover".</p> <p>Toll "has a bid on the table that creates value for shareholders", he said. </p> <p>Patrick is expected to seek a Takeover Panel ruling that Toll’s move amounts to a completely new offer, which must be extended until April 13, by which time the Victorian Surpeme Court will have started hearing Patrick’s moves to break up Pacific National. </p> <p>Yesterday’s relaunch of scrip-based bid for Patrick to $7.52 a share based on Toll’s March 17 close of $14.05, put its offer near the zone of Patrick’s own expert valuation of its shares.</p> <p>Toll will offer 0.4 Toll shares for each Patrick share, plus a more than doubling of the cash component to $1.90 and in a change of tactics, will waive its requirement for 90% acceptance if it gets effective control at 50.1%. </p> <p>It has also targeted cash at two planks in the Patrick defence, offering 20 cents per share if it gets to 90% acceptance, past the blocking stakes held by Patrick directors, and 10 cents per share if Patrick does not use its option to buy rail forwarder FCL Interstate Transport.</p> <p>This added cash would in theory, based on Toll’s March 17 share, put the Toll offer at $7.82 a share — or into the midpoint of Patrick’s expert valuation. </p> <p>Patrick has recently been trading at over $8 per share, though Toll managing director Paul Little said that both share prices had been driven by hedge fund activity in the past few weeks.</p> <p>Toll’s first offer was 0.4 Toll shares for each of Patrick’s plus 75 cents in cash and a dividend from Patrick of 0.3 Virgin Blue shares. This was worth $6.66 per share based on the September 14, 2005, price. </p> <p>The dividend of Virgin Blue shares has effectively been dropped. </p> <br />