Just as oil prices pushed through a
staggering $US70 billion a barrel, Virgin Blue shareholders are
suddenly enjoying the prospect of getting back to a break-even position
on the December 2003 float at $2.25 a share. Virgin Blue shares rose 4c
to a high of $1.91 this morning and when you factor in last year’s 25c
special cash-stripping dividend, investors are almost treading water.

Patrick Corp first became vulnerable when it was perceived to have
blundered by launching a hostile $1.90-a-share takeover bid for Virgin
Blue in January 2005 to emphatically seize control from Richard
Branson. Patrick received more acceptances than they wanted and lifted
its stake from 46% to 62% just as an unhedged Virgin was getting
walloped by the successful introduction of Jetstar and soaring oil
prices.

In hindsight, Branson would have been smarter to sell his entire 25%
Virgin Blue stake into the Patrick bid and then immediately launch with
Toll at a weakened Patrick. The passage of time has changed the
perception of Virgin Blue and Toll is certainly no longer talking
about handing back control to Richard Branson at just $1.40 a share,
even if that means paying a $12 million break-fee on the underwriting
agreement that came with the original Toll bid for Patrick.

It is hard to imagine Branson paying more than $2 a share when he was
happy to sell out at $2.25 a share just two and a half years ago, so
this raises the prospect of Singapore Airlines finally avenging Qantas
for the $500 million it dropped when Ansett and Air New Zealand both
collapsed in 2001.

Qantas is currently attempting a backdoor takeover of Air New Zealand
through another code-sharing deal that will lessen competition and
boost profits for both airlines flying across the ditch. However,
Qantas shares tumbled 8c to a six month low of $3.37 this morning as
investors contemplate developments over the weekend, particularly Paul
Little’s plans to possibly keep Virgin Blue and stop giving Qantas tens
of millions in airfreight business.

The emergence of a logistics super power like Toll-Patrick raises more
questions about the decision of Qantas and Australia Post to pay $750
million to philanthropy king Greg Poche for Star Track Express three
years ago.

And if Toll and Singapore get together to launch a pincer movement on
Qantas, Geoff Dixon will need to use all his government connections to
fend them off. For instance, Singapore could quite easily take a stake
in Virgin Blue and start flying the lucrative Pacific route. If that
happened, you can bet that Qantas would lobby hard to retain the
overall 51% limit on foreign ownership of our airline duopoly.

Qantas has to operate with the same restriction so Singapore would need
to take out Richard Branson if it wanted to end up with control of
Virgin Blue. Given that a cash-hungry Toll and minority Virgin Blue
shareholders would also have to be accommodated, this would be no easy
feat.

Peter Fray

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