Toll Holdings is saying goodbye to its brief ownership of Virgin Blue airline, which will now fall back under the sway of its founder, Sir Richard Branson.
He will hold 25.5% of the airline he started almost a decade ago, but then sold a controlling stake to Patrick Corporation that was then controlled by Chris Corrigan.
For Toll it’s an expensive lesson: there will be a non-cash charge of $1.3 billion against its 2008 profit.
The Virgin Blue (VBA) shares toll will be giving away will be worth around $330 million.
The decision to distribute most of the shares will result in a non-cash charge in Toll’s 2007-08 year of about $1.3 billion, reflecting the lower value of its stake: that’s the 75% drop in the value of the VBA stake held by Toll.
Given the current level of the share price for Virgin Blue and the state of the oil and jet fuel markets, some would argue that Sir Richard is probably getting back damaged goods.
He probably sees a bargain because Toll is giving shares away and his 26% stake will now be the dominant holding in a company that will be unwanted by investors large and small because of the impact on earnings of the fuel price crunch and slowdown in travel.
Toll has finally admitted that its exit strategy from VBA, which it gained when it bought Patrick Corporation in 2006, was non-existent.
There were no buyers and no way of getting rid of the stake, which has fallen 75% in value this year and dragged the Toll share price down with it; except by giving the shares away.
Which Toll has in a special dividend to shareholders of most of its stake 62.7% stake in VBA.
Toll shareholders will get the Virgin Blue shares on a one-for-one basis.
Toll will distribute about 648.1 million of its Virgin Blue shares, or about 98.3% of its total holding, leaving it with 11 million shares.
Toll will establish a share sale facility to allow Toll shareholders to sell off their shares.
Toll has always maintained it did not intend to be a long term investor in the carrier, but like the legendary tar baby Toll could not remove itself from control of VBA, despite two major attempts to do so.
The market welcomed the decision by pushing up Toll shares as much as 7.1% in a lower overall market, saying the company could now focus on its core logistics business.
But the gains eased as the day went on and Toll shares finished up 3% at $6.57, while VBA shares had a rare 1% gain on the day before falling again, only to rise 2 cents at the end to 52.5 cents, a rise of 4%.
