The market always knows best and they are telling the world that Lang Corp and Toll Holdings have got the key Australian rail assets on the cheap as 3 sets of governments mishandled another sale.

Taxpayers are collecting or being relieved of liabilities totalling $1.17 billion and in the two days after the announcement the market capitalisations of the two companies soared by almost $1 billion.

Remember the days when Lang was wallowing around the $1.20 mark during the docks dispute. On Thursday they rose $2.42 to $13.50 and a further 70c to $14.20 on Friday and CEO Chris Corrigan’s stake has soared to about $60 million.

John Elliott’s former best mate Peter Scanlon must be kicking himself for selling down his Lang holding to the tune of $50 million when the stock was closer to $10 last year but what’s left is still worth a handy $250 million.

Meanwhile, over at Toll Holdings, CEO Paul Little has really shown Mayne Nickless what they should have done and now finds himself on the Rich List worth about $300 million and the same goes for former chairman Peter Rowsthorn.

Toll shares rocketed $3.64 to $30 on Thursday and then a further $2.60 to $32.60 on Friday – a 24 per cent gain in two days – and to think Little and his Mayne Nick mates bought the little operation for a couple of million about 15 years back and lost $500,000 turning over $18 million in the first year.

These days Lang and Toll are both capped at more than $2 billion and no consortia of governments are going to get in the way of their rampaging share prices.

It really is a sweetheart deal because the governments have committed to spend $500 million upgrading the track which will remain with the taxpayers and therefore won’t be at risk of collapsing like Railtrack PLC did in the UK.

Rail transport remains a bit of a dog’s breakfast because NSW still has to agree the handover of its track to the Federal body and the rail freight operation in Queensland remains government-owned.

The governments have made a mess of the business with the surging Lang and Toll prices suggesting this final embarrassment is the sale process which failed to extract a fair price.

After investing $690 million in National Rail over the past two years, the government has recouped only a portion of this in the sale price. And the new owners are now set to sell up to 120 locomotives and 650 wagons – a clear statement of massive gold-plating and over-investment by the former management.

We look forward to seeing the Auditor General’s report into this sale and expect it will show the assets were sold well below book value.

It is no surprise to see the NSW government involved in a knockdown sale. Afterall, NSW taxpayers sold the NSW State Bank for about $200 million and it is now valued at about $5 billion by its latest owner, the Commonwealth Bank.

As usual, the influential NSW unions managed to depress the price by negotiating incredibly good deals for their workers. There will be no forced redundancies of the 3000 staff transferring for three years, so you can expect plenty of Toll and Lang staff to get the boot initially to meet the ambitious cost-cutting program built into the forecasts.

NSW Treasurer Michael Egan claimed his state would receive $804 million from the sale which would comprise $365 million in cash, $245 million in Freightcorp debt assumption, $44 million for staff transfer payments and a guaranteed $118 million investment in new grain storage facilities by the new owners.

The union has collected about $77 million in transfer payments for their members which amounts to an extraordinarily generous $35,000 for some workers to transfer to a new employer with the promise of not being retrenched for 3 years. Not bad if you can get it.

There’ll be much more to say about this deal as more facts surface but for now, this is the account of the Toll Holdings AGM which was sent to subscribers a couple of months ago.

Crikey at the Toll Holdings AGM

By Stephen Mayne

November 2001

Crikey hopped on the push bike and headed to the Toll Holdings AGM this morning wanting to learn more about the best performing stock in the All Ords 100 index over the past year. We weren’t disappointed.

Toll is easily the best performing company in the transport/logistics game and the two blokes who founded it – CEO Paul Little and gruff chairman Peter Rowsthorn – are now each worth about $250 million.

After some upbeat presentations which demonstrate the sensational performance, the ASA’s Stan Mather opened proceedings with a moan about all these executives getting $85 million worth for shares for $20 million as they continue to exercise options.

The answers were the usual pay for performance, incentives, share the wealth type lines which were spot on.

The real problem was the issue Crikey raised about the company being so successful that the board and senior management now own about $600 million worth of shares and don’t have much ongoing motivation because the place has become such a millionaire factory.

CEO Little queried my estimate of 50 millionaires and also declined to give an iron clad guarantee that the three largest director shareholders – who recently sold down into a $129 million share placement at $23 a share reducing their combined stake from 33 per cent to 28 per cent – would ever sell more shares. However, he did say they had no current plans.

The chairman is 71 and your classic gruff and understated transport type.

At the end of the meeting he announce his retirement and reflected back on when he and Paul Little bought the company for $2 million in 1986 and lost $500,000 in the first year on revenue of $19 million. Revenues will probably top $1.9 billion this year and the share price has gone from $2 to $27 in four years and net profit will crack $50 million this year.

A Mr Rob Thomas from one of the investment houses that have profited from Toll, then stood up and delivered a glowing tribute claiming that the company had delivered compound EPS growth of 17.4% since the float in 1993 and that $10,000 invested in 1993 was now worth $140,000 even before considering the handy dividend flow.

However, his claim that the employee and executive options schemes had delivered a benefit of $1,730 million in benefits seems a bit far-fetched as the whole company is only worth $2 billion.

The shareholders clapped hard at the end of this and probably should have delivered a standing ovation.

In his classic understated way, the chairman responded by saying: “And there’s a cup of tea outside for you now.”

The transport game isn’t fashionable and glamorous, but these boys are to be commended. 1000 of their 8000 employees have shared in the bonanza as shareholders and there are now bidding for National Rail Corp and Freight Corp with Lang Corp as the industry further consolidates and these giants rip out bigger and bigger margins from the reduction in competitors and sheer scale of their operation.

Peter Fray

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