Ever since Patrick Corporation took control of Virgin Blue in April, Sir Richard Branson has been angling to get back into the carrier he started.
Now, in an unusual alliance with Toll Holdings, one of Australia’s two big transport companies, Branson’s Virgin Group has a chance to oust Patrick as Virgin Blue’s largest shareholder.
Immediately after Patrick launched its takeover bid for Virgin Blue in late January, Branson started looking for a way to regain control of the Australian low-cost carrier, which he helped launch. He approached Toll Holdings, Patrick’s biggest transport rival, and discussed the idea of Toll making a bid to acquire Patrick and then selling some of Patrick’s Virgin Blue’s shares to Branson’s Virgin Group.
Toll was interested, but unable to move fast enough to thwart Patrick’s takeover of Virgin Blue in April. For the time being, Branson was forced to put what he calls “a brave face” on his loss of influence at Virgin Blue. But in July Toll recontacted Branson and said it was ready to launch a takeover bid for Patrick. Toll and Branson agreed that if that bid succeeded, Toll would reduce Patrick’s 62% stake in Virgin Blue to as low as 10%.
The Virgin Group would underwrite the sale of 15% of those shares, which it could buy for A$220 million ($150 million). The rest would be offered to the public. This would boost the Virgin Group’s stake in Virgin Blue to 41%, making it the airline’s largest shareholder. At present, Virgin owns 25.6%.
Now the A$4.6 billion takeover battle between Toll and Patrick is in full swing. Patrick is resisting with every tactic it can find, including complaints to Australia’s takeover panel and predictions that the Australian Competition and Consumer Commission will never allow so much concentration in the transport industry. Toll says that if its takeover works, it also hopes to use Virgin Blue to transport cargo. Analysts are currently split on the likelihood of the takeover’s success.
Even though the outcome remains in doubt, Branson is not mincing his words about why he wants his group back in control at the airline. He accuses Patrick’s chief executive, Chris Corrigan, of dragging his feet on a frequent-flyer programme that Virgin Blue needs so it can compete more effectively with rival Qantas Airways for business travellers. Branson claims that Patrick lacks the experience to run an airline, citing the absence of any fuel hedging programme as a Patrick miscue that has cost Virgin Blue millions. Corrigan dismisses Branson’s charges as “laughable”.
If Toll’s takeover fails and Patrick and Virgin Group directors are forced to share the same room, future board meetings could be stormy.
Source: Airline Business