Taking it to Toll in 2002

By Stephen Mayne
January 17, 2008

The Crikey account of the 2002 Toll Holdings AGM held on October 31 in Melbourne.

The Toll Holdings AGM in Melbourne this morning was suitably upbeat given they continue to report record profits and snap up rival companies seemingly every month.

This morning we had the $73 million deal to buy Brambles Shipping which gives Toll two big ships to ply Bass Strait between Melbourne and Tassie.

Crikey's biggest beef with this outfit is that they run out of annual reports at each AGM, so I'm flying a little blind on last year's reports.

However, the $200 million man, CEO and co-founder Paul Little, did accuse me of insulting him by asking whether there was some hidden agenda with the move to force the early conversion of $114 million worth of unsecured convertible notes.

Little paid sod all for his 9.23 million ordinary shares which peaked at almost $39 in April this year but have now settled back around $27. (Crikey paid $25 for 16 shares two weeks ago).

But he and Mark Rowsthorn, the son of co-founder and retired Toll chairman Peter Rowsthorn, together shelled out $25 million to pick up 1.5 million convertible notes at $17 in May 2001.

Now the board has decided to force the early conversion, which in Crikey's book says that they believe the share price is overcooked and will be lower when they are due to convert.

It only means that the two largest holders of ordinary shares will become even bigger shareholders but the move might give them a chance to dump some more shares as it will increase liquidity overall. The notes are hard to shift in large volumes.

Toll was tipped in the media to unveil a deal to buy part of Mayne's logistics business today but there was no mention in the formal addresses and when I asked about it Little refused to comment.

The Mayne deal would be the ultimate triumph for Little and Rowsthorn's dad Peter who both came out of Mayne 15 years ago when they shelled out $2 million on a management buyout of a small transport operator in WA which lost $500,000 in the first year.

But Little was talking up other recent contracts, especially the $1 billion deal with the Peter Reith-assisted Tenix to take over all the logistics and warehousing for Australia's defence forces.

This required 3 painful years of tendering but all the problems seemed to go away once Reithy got on board with Tenix.

Have taxpayers got a good deal? Maybe, although you always worry when someone does a deal with a bunch of public servants and then describes it as an "absolutely magnificent contract" for Toll-Tenix.

The deal gives Toll-Tenix responsibility for 27,000 customer dependents housed in 228 buildings with 1.6 million lines of product worth $6.6 billion.

Little reckons the government will save 50 per cent and warehouse space will fall by 25 per cent which suggests the current supply management practices of Australia's defence forces are an absolute shambles.

Corporate governance issues at Toll are in reasonable shape although we only have promises that independent non-executive directors will regain the balance of power in the near future. The finance director Neil Chatfield should be booted off the audit committee and chairman John Moule said he'd be bowing out as chairman of the audit committee shortly, at which point they would review Chatfield's position as well.

None of the NEDS have heaps of industry experience so we really need a couple of retired transport gurus to join the board. How about former TNT MD David Mortimer and former Mayne MD Bill Bytheway (don't mention those price fixing fines.)

Moule is an old mate of discredited Austrim-Nylex founder Alan Jackson through the Deloitte connection and even agreed to chair Austrim for about 9 months before resigning in January this year shortly after he stepped up as chairman of Toll. Moule was the Victorian managing partner of Deloitte which has hung on to the Austrim-Nylex audit gig, although at least they have just rotated the audit partner.

Austrim and Toll are both Melbourne-based companies which went on huge acquisition sprees over the past 7 years. That is where the comparisons end and Moule was smart to hitch his star to the successful one.