Toll will create a separately listed infrastructure trust made up of Australia's biggest ports owner and the Pacific National rail network. Toll executive Mark Rowsthorn will run the trust, which will assume 83 per cent of Toll's debt, the Melbourne-based company said yesterday.
'It makes Toll itself a higher growth vehicle,' said Angus Gluskie of White Funds Management in Sydney. 'The infrastructure assets are being hived off, which leaves you as an investor in Toll with a greater exposure to the higher-growth assets.'
The two separate companies will each have a market value of about A$6 billion, Mr Little said on a conference call yesterday. Toll estimates it will post annual sales of A$7 billion and the infrastructure trust will have revenue of A$2.8 billion.
The stock has gained 29 per cent this year and is headed for its fourth straight annual increase.
Both companies will be ranked in Australia's benchmark S&P/ASX 200 Index's top 50, Toll said.
Shareholders are scheduled to vote on the plans in April and, if approved, the shares of the infrastructure trust would begin trading at the end of that month. The Australian Competition and Consumer Commission yesterday said it's reviewing Toll's proposal.
Toll also sought regulatory permission to cancel the sale of 50 per cent of Pacific National, the company said. Toll was under antitrust orders to sell the business after taking full ownership following its acqui sition of Patrick Corp.
The regulator hasn't formed a view on the Toll plan and will make a decision after engaging in market inquiries. If no concerns are raised 'the Australian Competition and Consumer Commission would look favourably on such a waiver', the regulator's chairman Graeme Samuel said in a separate statement.
Toll hired UBS AG to advise on the split.
'The restructure should be seen as the next generation of growth for both companies by allowing each business to expand faster into global markets, through strategic acquisitions and rapid organic growth,' Mr Little said.
Toll will be left with assets valued at A$5.5 billion and the infrastructure trust owning assets valued at A$8 billion. The trust will take on A$4.3 billion of the A$5.15 billion of debt Toll already carries, leaving the bigger company with just A$400 million in direct debt. Toll will also owe A$250 million to holders of its preference shares and A$240 million of net debt at Virgin Blue.
'The valuation which is assigned to long-duration assets such as ports and the like is better reflected in a separate vehicle,' said Paul Xiradis, who manages the equivalent of US$6.9 billion in Ausbil Dexia Ltd in Sydney, including Toll shares. 'It frees up Toll's balance sheet to pursue other opportunities in Asia.'
The infrastructure company will have annual earnings before interest, tax, depreciation and amorti sation of A$650 million compared with A$850 million for Toll, it said.
'A restructure of this type will lead to a re-rating of Toll's port assets, due to strong multiples for recent port asset sales,' said Matt Crowe, a transport analyst at JPMorgan Chase & Co, on Tuesday.