For
those who believe that “the market knows best”, the Toll and Patrick
boards certainly did the right thing in reaching an accommodation last
Thursday afternoon.

Toll shares today jumped $1.25 to $14.40, lifting its market
capitalisation by $416 million to $4.8 billion – only marginally above
the company’s pre-bid price last October, despite the overall
market surging almost 20%. Patrick has enjoyed a similar surge with its
stock rising 62c to $8.65, lifting its market value by $427 million to
$6.07 billion.

In crude terms, Toll has created almost $2 billion in value for Patrick
shareholders, which will see chairman Peter Scanlon and chief executive
Chris Corrigan walk away with almost $600 million between them. During
the depths of the 1998 docks dispute – another momentous decision taken
at Easter – the two saw their combined stake in the then Lang Corp
plunge to barely $30 million. They have a lot to thank the Howard
Government for, in particular Peter Reith, and with WorkChoices now
available to employers, these stunning union-busting profits for
Patrick provide a tempting precedent.

Scanlon was the master-strategist behind the rise of John Elliott and
Elders IXL, but he was technically bankrupt after the 1987 stockmarket
crash, just when Elliott wanted to crank up his push for The Lodge.
Prime Minister Howard ended up being just as benevolent as Prime
Minister Elliott would have been because Scanlon’s $400 million pay day
all comes back to the lucrative duopoly position Patrick carved out on
the docks.

It will be interesting to see whether Scanlon and Corrigan stay for the
ride or cash out their entire Toll stake on the market. The other
interesting element will be the nature of any non-compete deals that
are part of Thursday’s surrender.

The Kennett Government unsuccessfully tried to encourage a third
stevedore to break the P&O/Patrick duopoly and Toll is widely
expected to try and push through various price increases to generate a
return on its $6 billion Patrick investment. Excessive gouging might
tempt major customers to back Corrigan and Scanlon in re-entering the
fray, provided they are not constrained.

AFR Chanticleer columnist John Durie gave Toll boss Paul Little
a hefty cuffing today for paying over the odds, but he and co-founders
Peter and Mark Rowsthorn wouldn’t be too worried given they have
created more than $1 billion in value for themselves by quitting Mayne
Nickless and later pursuing a $2 million management buyout of
Pilbara-based Toll Holdings (revenue $18 million) almost 20 years ago.
As for Mayne, it is now a demerged pharmaceutical and healthcare
concern that would have been far better off installing Little as CEO.

A stunning 46 takeovers in 17 years have been beautifully executed by
Toll, so there’s no reason to think they can’t do it again. That
said, this is twice as big as all of them combined and more than a
dozen senior Patrick executives will be millionaires from their option
plays, so it might be difficult to persuade them to stay on,
particularly given the loyalty that Corrigan and Scanlon generated.

Peter Fray

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