Linfox

AUSTRALIA'S biggest private transport owner, Linfox, surprised the investment community yesterday with the purchase of Westgate Logistics for an estimated $180 million.

The move triggered speculation that it was part of the Fox family's grand plan to list on the Australian Securities Exchange for at least $1.5 billion.  The market has been waiting for a second force behind Toll Holdings, and analysts say Linfox is conscious of this.  It is not the first time Linfox has listed on the ASX. It listed in 1987, but that lasted less than two years before the family bought back the company.  Linfox is the second biggest transport company in Australia and has operations in 11 countries.

To fund its expansion -- especially projects in other parts of the Fox family empire such as Avalon and Essendon Airports -- it will need large amounts of capital.  Pricing multiples in the transport industry have never been so high. Transport companies are selling for 15 to 20 times earnings.

As a private company, Linfox does not release profit figures, but it says the latest acquisition will bump up its turnover from $1.8 billion to $2 billion.  This is still a far cry from transport industry leader Toll Holdings, which is forecast to report annual revenue in 2007 of close to $10 billion, and net profit of almost $500 million.  Linfox's purchase of Sam Tarascio's Westgate business follows two other acquisitions in the past year, including Bill Gibbons' freight forwarder FCL Freight last August for $170 million and Provincial Freightlines in May this year.

Apart from his transport interests, Mr Tarascio is one of Melbourne's most high-profile builder-developers, with a current construction work book of more than $700 million. His Salta Constructions is one of Australia's largest and most diversified privately owned building groups.  Westgate beefs up its warehouse capabilities and extends its offerings to customers to include more dangerous goods warehousing. It also ensures that it maintains at least one of the big retailers as a key client.  Right now Coles is Linfox's biggest client. Indeed, Linfox founder Lindsay Fox used to sit on the Coles board.  But, with Coles for sale, future contracts may be reviewed. Westgate has a big chunk of the Woolworths transport business.

Linfox has been trying to consolidate its position in the Australian transport market for the past two years, even before Toll Holdings' purchase of Patrick Corporation.  For instance, Lindsay Fox spoke to Chris Corrigan about selling Linfox into Patrick and taking a 20 per cent stake in the merged entity. These plans were derailed when Paul Little's Toll came along and made an offer for Patrick.  He then spoke to Qantas about selling its business.  Sources close to Qantas say the Fox family wanted $1.1 billion, which the airline considered far too much.

Executive chairman Peter Fox's goal is to turn Linfox into a $4 billion to $6 billion operation by 2010, but after the Toll-Patrick merger, the Australian transport landscape changed so dramatically that it forced many of the smaller transport operators to either close or sell out.

Peter Fox said Linfox decided to build up its acquisitions because if it had sat still after the Toll deal it would now be finished. "We have made three acquisitions in the past year to consolidate our position in the industry," he said.  "You can only be number one or two or maybe three in this industry. The others will get squeezed out."  Because of this he expects the third-biggest transport operator, Allan Scott's transport business, to put up the for-sale sign.  "Let's face it, Allan Scott is 84 and there isn't a clear succession in place as far as I can see," he said.  Not surprisingly, Linfox would be first in line to bid for the business. "It's a good business and I can't imagine the ACCC letting Toll buy it.  "Then again, you never know. I didn't expect them to let the Patrick deal go through."

Transport is one of the toughest industries to operate in. It got even tougher when Toll emerged as a fully integrated logistics and transport operator.  It got tougher again with the rising fuel prices, heavy capital expenditure in IT and difficulty in getting staff.  For this reason there will be a lot more consolidation in the next few years.  "As I see it, this place is built on monopolies and duopolies. Companies at the bottom will get squeezed out," he said.  Mr Fox said the company was not looking at listing at the moment. But, he said, "Never say never."

Toll Holdings

Logistics giant Toll Holdings (Au:TOL) is hinting at major new acquisitions now that its restructuring is complete, and the freight business Linfox is in its sights. Toll is not underestimating the competition issues this might create with the authorities. Nevertheless, it was to open the way to acquisitions that Toll split itself into two companies: Toll owning the logistics assets, and a new company Asciano owning assets such as stevedore Patrick Corp, rail company Pacific National and its stake in Virgin Blue. This was done in order to satisfy the Australian regulator, which was making moves to break Toll's competitive power. Toll has grown enormous on the back of acquisitions, numbering 22 at the time it made its pitch for Patrick. One of its most problematic has been the NZ railway assets now contained in Toll NZ. But this is a pinprick compared to its successes.

Hellaby Holdings

Hellaby (HBY) chief executive David Houldsworth announced his resignation last week, closing another chapter in the diversified company's recent decline. At the beginning of May Hellaby announced it had initiated a strategic review of the footwear businesses, and was considering a number of alternatives to create additional value from them. But last week it issued a profit warning, saying annual profit would fall by a third due to a disappointing performance from its industrial assets. Hellaby has been a strong recovery story for many years, with a clever eye for acquisitions. It developed in two directions, footwear and clothing and industrial assets, adding value for shareholders along the way. But in a still strong economy it seems to have lost its way. The acquisition of BBQ Factory at a premium price, when the latter failed to list on the sharemarket, was very unlike Hellaby. And recently even the strong assets have been slipping.