The clouds on the horizon for Chris Corrigan’s Patrick Corporation and Virgin Blue got a little darker this morning when the US Federal Reserve lifted official interest rates from 2.5% to 2.75%.

With oil prices surging and a global economic slowdown emerging, analysts are starting to think that Patrick Corp might be buying into trouble now that it has emerged with control of Virgin Blue and could potentially finish up borrowing $1 billion to win the “prize” as global interest rates rise.

The business commentators are decidedly mixed. News Ltd’s Terry McCrann remains a Corrigan devotee and thinks he’s buying the business on the cheap. The McCrannisms were on display in this opening paragraph: “Virgin Blue did not issue a profit warning yesterday – rather, a `Tall Chris’ short-termism alert.” Got that?

The AFR’s Chanticleer columnist John Durie had the best analysis, pointing out that Geoff Dixon’s Jetstar strategy had been devastatingly effective. The hyperbole was really flowing when he declared it to be “one of the most successul management strategies in recent corporate Australian history.”

It’s certainly ironic that the ultimate union-buster Chris Corrigan has been ambushed by another powerful exercise in union busting, albeit one more subtly executed without dogs and balaclavas.

Richard Branson and his Virgin Blue CEO Brett Godfrey have some big decisions to make by Friday next week when the 1.90-a-share Patrick offer expires. Godfrey appears headed for the door as penance for failing to lock in hedging protection on the oil price and cranking up capacity by 50% last year.

Virgin Blue chairman Corrigan presumably took a “you blokes know best” position at the time, but has now decided to act in what could yet turn out to be a significant mistake, especially if Minardi owner Paul Stoddard gets his new airline up and running, cherry-picking the Melbourne-Sydney-Brisbane routes.

Patrick shares fell another 12c to a four-month low of $6.03 this morning, and Virgin Blue remains stuck on the unconditional bid price of $1.90, but with trades at $1.89 this morning. The stock was wallowing at $1.70 before Patrick’s bid, and minorities could face a price of just $1.50 after the bid lapses on April Fool’s Day, given the continuing profit warnings and turmoil hitting the airline.

This is the dilemma facing Branson and Godfrey, who together own 33% of the company and could walk away with another $560 million from Patrick. Godfrey has been mute throughout the takeover battle, yet there’s nothing stopping him from accepting the offer from his chairman and pocketing $63 million for his 33 million shares. Sure, he never took it to the next stage, and his 10.3 million options at $2.25 would just lapse, but who needs the grief?

Branson could also pocket an additional $500 million for his remaining 25% and still brag to be the most successful foreign investor in Australian history – having turned an initial $15 million investment into a clear profit of $1 billion over six years.

If Branson refuses to sell, Corrigan could always turn around and do what Kerry Packer did to Alan Bond in the 1980s. Packer was negotiating to buy Channel Nine in Perth and Brisbane and Bondy was asking too much so he said words to the effect, “If they’re worth that much, you should buy Melbourne and Sydney off me for $1 billion.”

Bondy accepted the hospital pass, and the rest is history. Patrick Corp would still get out for a tidy profit if it exited at $1.90, but it looks like Chris Corrigan has decided to wade further into the maelstrom. Who knows, maybe Branson will get to buy it back for a fraction of today’s $1.9 billion valuation some time in the future.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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