Toll vs. Patrick In Focus

There’s nothing like a hard-fought takeover battle to potentially confuse investors with a welter of claim and counter-claim, never mind wildly different valuations from the opposing sides.

And few takeovers recently have been as vicious as the hostile takeover of Patrick Corporation attempted by Toll Holdings. It’s arguable that both companies have been damaged by the exercise, primarily through shooting themselves in the foot of their Pacific National rail joint venture. We’ve also seen Patrick suddenly extract a dividend from Virgin Blue, against the opposition of minority board members, and now Toll is considering its legal and other options after running into a regulatory wall in the form of the Australian Competition & Consumer Commission. Toll announced today it would discontinue its informal talks with the ACCC and proceed with the bid, presumably preparing for a court challenge.

Along the way, Toll and Patrick share prices have been pushed around by the course of the battle '” leaving many investors wondering where there might now be value. And on top of that, there’s been the activity of hedge funds joining the fray '” an issue Eureka Report has dealt with previously in our interview with Rob Vanderzeil of UBS. (Click here.)

In search of an independent voice then, we’ve turned to ABN AMRO transport analyst, Anthony Srom. As you can see in the video interview, Anthony is reasonably positive about both companies in the longer term, but it’s Paul Little’s Toll Holdings that he thinks is most undervalued at present.

And, for what it’s worth, so does Goldman Sachs JB Were analyst Paul Ryan. His opinion has been a factor in pushing up Virgin Blue shares this week as he reckons Virgin Blue must be on track for a higher-than-expected profit to allow Patrick to maintain its profit guidance in light of the Pacific National troubles.

Ryan has a valuation on Patrick of $6.50, less than what the stockmarket is saying this morning, but reckons Toll is worth $14.00 against yesterday's close of $11.40. Just to show how confusing it remains, though, Ryan has Patrick as a short-term “market performance” and a long-term “buy” while Toll is a short-term “under performance” and a long-term “hold”.

If you’re confused about that, I don’t blame you. Have a look at what Anthony Srom has to say, and that should help.
Disclaimer: Investment bank Carnegie Wylie, an adviser to Toll Holdings, is a shareholder in Eureka Report.