Mergers & Acquisitions as a facilitator of industry restructuring

The issue

Patrick Corporation is Australia's largest logistics and stevedoring corporation. Toll Holdings, is one of Australia's biggest trucking outfits, moving 20% of its freight by rail. The two companies formed a consortium to bid on two Australian government-owned rail companies -- National Rail and Freightcorp -- that were put up for sale through a competitive tender process.

National Rail began operations in 1993 and became Australia's biggest interstate freight carrier, hauling about 600,000 containers a year for more than 500 customers. Freightcorp was established in 1996 and at the time of sale was hauling 85 million tonnes of coal, grain, and minerals.

Previously, PricewaterhouseCoopers (PwC) had been engaged by the New South Wales (NSW) Government, owners of FreightCorp, and the Commonwealth Government (70%), NSW (20%) and Victorian State Governments (10%) owners of national Rail, to advise on the privatisation of the rail companies and had recommended that the governments sell the assets together.

Our approach

PwC was hired by the Patrick/Toll consortium to provide assistance in performing financial and taxation due diligence on the target business, particularly from an industry perspective to ensure that the relevant risks of the rail assets were identified and appropriately modelled. Patrick/Toll also required assistance in building their bid model to ensure that the ultimate bid price would result in a positive outcome for their respective businesses. No merchant bank was involved in the transaction although a boutique advisory did provide strategic advice. In addition, PwC was asked to assist the consortium in developing a strategy to deal with the financiers as Patrick/Toll did not engage an investment bank.

The outcome

The Patrick/Toll consortium was successful in its bid to acquire National Rail and Freightcorp. The combined rail businesses of Toll Holdings, Patrick Corporation, FreightCorp and National Rail (previously known as the National Rail Consortium) are now operating under the name Pacific National. Privatisation International magazine named the deal Infrastructure Deal of the Year in Asia Pacific.