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Freight wars -

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(generated from captions) The $4.6 billion hostile bid by Toll Holdings for Patrick Corporation will be strongly defended, as the two transport giants, and they're respective CEOs, go head to head. But it will also be an arm wrestle for Australia's trade gateways. In a moment I'll be speaking to Toll boss Paul Little, but first here's the background from Ross Greenwood. My view is the creation of a $7 billion turnover enterprise,

being the fourth largest transportation company in the world,

that's based in Australia, is firstly, a pretty powerful company. Will they exercise that market power? We have no doubt about that. The latest numbers show that transport businesses contribute 5% to the national economy. Road transport dominates still, but rail's expected to be the fastest growing. Each year, more than 2.2 billion tonnes of freight is shipped, with a further 500 million tonnes sent overseas. The whole business is worth more than $36 billion and is expected to double within 15 years. JOHN MOLLER Ships are getting bigger We can go back to 1968 and see the biggest ship that were being built had container capacit of 1,000 TEUs Today, the new ships that are bein built are 9,000-plus TEUs, probably going to 12,000, so, in order to accommodate that, you have to have bigger cranes, you've got to have continuin investment in infrastructure to manage that So if you've got a lot of competition with a lot of operators, you'll never get a retur to be able to satisf those changing requirements A large dominant player can be a significant investor You just have to be confident that they're going to be a benevolent investor, that their fund are going to be use to build the national infrastructure and not exclusively to provide profits to the shareholders Now clearly, a major investor will need to be profitable, will need to provide effective dividends to shareholders, but where you've got a dominant player, it's also very important that they adopt a national view and are prepare to look at what's important to drive our country forward So does Toll and its chief executive Paul Little have that capacity to be a benevolent investor? In a funny way, I think at the end of the day, if I was probably sitting where Little is sitting and he could create the position that he's looking to create as a road, rail, sea organisation, it's the ultimate as an intermodal company that can offer one service across multiple modes of transportation. And there's a big upside in having that. You know, so there is a plus there. Little's not silly. He's made some very important acquisitions throughout his career. Peter Fox says if Toll gets Patrick's terminals as well, watch out. PETER FOX: I look at the analogy in the previous experience we've ha in the airline game when we attempted to do something with Ansett. If you don't have a terminal to access a plane into, you can't get in, the aircraft can't unload your passengers at that terminal. Now, if Qantas owned Sydney terminal and it refused to let Patrick land their planes at the airport and get passengers off that plane in a Qantas-owned terminal or a Qantas-owned airport, you would have a lessening of competition, you'd have an absolute lessening of competition. The analogy I put to you is in the rail industry, you have one Pacific National already today that controls all the eastern seaboard rail terminals. You can't get in. It will no doubt weigh on the ACCC's mind. But the Minister also is concerned about such concentration. We don't want a single dominant player in our rail system Very much the nature of the reform that were put in place in the past was to achieve competitio in the rail sector

We've had the monopolies, the government-owned monopolie in the past We wanted to move away from that so we certainly don't want a private monopoly on the rail system Ultimately decisions about our transport networks and even this takeover might end not just in a corporate battle but a political brawl as well. Old wounds going all the way back to the dangerous days of the summer of 1998 might be reopened. I don't want to get into a conspiracy theory here, but there is some powers to be in the political arena in Australia that will have to have influence over this decision of Toll to buy Patrick. Don't underestimate the political favours that are owed back from the waterfront dispute. Linfox Chairman Peter Fox. Now here's the man at the heart of the bid, Toll's CEO Paul Little. who denies he's picked a weak moment for Patrick to launch his takeover. This has been something that's been very much on our drawing board for a long time. Patrick is a very well-run business with key assets that would complement the rest of Toll so we're very keen to put those two businesses together. If you're not taking advantage of the slump, what prompted the timing Well, I think there's a huge lead-u to doing something like a hostile bid - clearly, many people involved, a lot of planning, due diligence. It's been a number of months getting it together. The timing was just coincidental, really. Serendipity - the price was low and you were ready Well, it was a handy thing to have going for us. But we're very mindful of this being a long process. It's very early in the process. So to some extent the events of last week I think are fairly irrelevant. How much more is in your kitty Our value and the strength of our bid I think everyone has now had a long time to look at. A bid statement will be out in three weeks. It is a very strong bid. It's a very clear bid. And at this point in time we're happy to be just talking about our bid as it is today. But you have room to move if you had to pay more No, I'm not saying we have room to move. I'm certainly not talking about paying more. I genuinely believe our bid is a very strong bid and the shareholders will be asked to make their judgment based on our bid.

What is in thi for Patrick shareholders They get your scrip They get a bit of cas and they get some of Virgin Blue that they already own What are the benefits The benefits for Patrick shareholders are quite clearly going to the next level. Our view is that no longer is it possible or acceptable to just be a stevedore.

I think our view is that the business needs to be expanded and grown along the lines of an integrated transport solution At the present time, we think we could add the stevedoring activity into the rest of the capabilities that Toll have and really create a very powerful outcome in terms of service offering. To be just offering one of the components along the supply chain - for example, the stevedoring - in our view, it's not enough. So I guess the benefit to Patrick shareholders going forward is opening up new opportunities in terms of growth

with a particular focus on the Asian sector. From a competition perspective, why so sanguine about potential issues with the ACCC Well, I think Graeme Samuel doesn't like - and I can understand - these things to be debated in the public arena before he has an opportunity for the processes to work as they should do He has a very consultative process that he now follows. All of the protagonists will be out there

talking about why or why not this should happen. But at end of the day everyone will get an opportunity to give their views on this. Our views obviously are that the ACCC process needs to occur. But we're very confident because of the low level of overlap

that really occurs in the two companies' assets and their operations that the ACCC will give this the green light ultimately. How big a battle is this going to be Well, you know, our view is that it's a very good business. The people that run it - Peter Scanlon and Chris Corrigan - are very good operators. We've tried to create a friendly merger of these businesses. Unfortunately, there's nothing that sits between friendly and hostile. If there was, I guess we would be trying to achieve that.

At the end of the day we sincerely hope we can get a friendly outcome because that would be the best outcome for all shareholders. Certainly the relations betwee Corrigan and Branso have already hit a new low Yes. I think to some extent that's unfortunate. Our hope has been as this particular bid moves forward, that it doesn't become personal. I don't think that adds any value for anyone. We want to focus on the key components here - the value add, the high multiples we're paying for the ports, the outstanding value that Toll shareholders have received in the last five years. It's been an outstanding achievement. So from my point of view there's nothing to be gained by getting personal. At some point I would have thought there was some built-up issues there between Chris and Richard

that maybe now are out there and out of the way. We just hope it can - the focus can stay on the core issues. Have you had a quiet word to Branson We've been talking a bit. He's very receptive to how we're thinking with this. Hopefully, it will become more subjective than perhaps what it's been to date. And support from institutions how is that running Look, it's been very, very positive Institutions, of course, have their own interests. Most of them disclose that right up front.

That's very good.

But at the end of the day, I think the institutions have always felt in numerous presentations we've made to them in the past that it would be good for Toll and Patrick to get together. Now that the bid is out there in the marketplace, they've been quite supportive of the outcome. It's more about can it happen, will it happen and how much will it cost at the end of the day. Is the 'will' still a question, or is the 'if' now out of the equation No. I think for us we believe our bid is a very strong bid. We will be working very hard,

and have done over the last couple of days and will be over the next few weeks, to make sure that there's a clear understanding about the value of what it is we are putting together. The bid statement becomes a very important document in this process. I have to say to date we've been very encouraged by the feedback we're getting. Any 'if' still in your mind