Japan Post’s $6.5 billion agreed purchase of Toll Holdings (TOL) is all over bar the celebrating and the distribution of hundreds of millions in dollars to the main people behind the growth in Toll – including well over $340 million to Paul Little, the company’s recently retired CEO.
Toll Holdings’ board has recommended investors accept the cash takeover bid of $9.04 a share from Japan Post, valuing the Toll at $6.5 billion.
The offer represents a 49% premium to Toll’s closing price on Tuesday of $6.08 – that’s a premium so large that no hedge fund or private equity group would contemplate muscling in because it can’t do anything with Toll – Japan Post’s global ambitions for Toll justify the huge premium.
And on top of that generous price, Toll shareholders get their hands on the 13c a share dividend.
Toll shares jumped 47% to $8.95 – a sign the market doesn’t see any chance of an overbid.
TOL 1Y – Toll shares skyrocket following takeover
Japan Post’s deal comes ahead of its proposed sell off in Japan later this year by the government of Prime Minister Abe and the move is a key positioning for a major global push ahead of that sale process starting.
Under the terms of the deal Toll’s existing management team and brand will remain in place, with the company becoming a key division that spearheads the expansion of Japan Post’s global operations. Toll CEO Brian Kruger will report to Japan Post CEO Toru Takahashi.
It is the second major offshore purchase of a huge Australian transport group in two decades – In 1996 the just privatised Dutch post office KPN acquired TNT for $A2 billion. In June 1998 TNT Post Group was demerged from KPN, creating a new entity focused on mail, express and logistics and leaving KPN purely a telecommunications firm.
The Japanese government is carving Japan Post up into three businesses ahead of the sell-off (expected to raise more than $US67 billion). Japan Post is a bank, an insurer, the post office and a transport giant.
Hence the need to expand overseas and the deal to buy Toll will see the Australian company become the main brand and spearhead of that expansion across transport and logistics globally. It will build on the Asian businesses Toll has been growing for the past decade.
“We believe the combination of Japan Post and Toll will be a transformational transaction for both our companies,” said Toru Takashi, Japan Post chief executive in a statement yesterday.
“In partnership with Toll we are starting a new chapter of looking outward and becoming a leading global player,” he said.
The Japanese government will privatise via stockmarket listings Japan Post’s holding company (containing the transport businesses) and the banking and insurance arms. The sales will be done in a number of tranches over a period of time.
Japan Post has a network of 20,000 branches and about 400,000 employees in Japan. But the economy is not growing strongly, many companies have headed off overseas and haven’t returned, and its growth prospects are gloomy for a company about to list on the stockmarket.
In fact it needs a growth story to help sell its shares in Japan and to foreigners, and buying Toll for a very expensive price helps provide that message.
Japan Post’s home market is shrinking as the country ages and the size of the population falls (by close on a million this year, according to government estimates last month). That means there’s less need for its offerings in finance, insurance, transport and other services. It either has to grow internationally or slowly wither domestically.
Toll shareholders will vote on the proposed acquisition at a meeting in May. The deal also requires regulatory approval from Australia’s Treasurer Joe Hockey.
That won’t be a problem seeing the deal is with a company based in Japan, which is the Abbott government’s favourite government in Asia.
