Toll Holdings to Exit Its Stakes in Virgin Blue

Submitted by Craig Strzelecki on 14 July, 2008 - 08:53

Toll Holdings, the largest shareholder in Australia's second largest Airline, Virgin Blue Holdings plans to scrape its majority stakes in the airlines. Virgin Airlines is also Australia's biggest freight carrier owned by Virgin Group. Toll shall offload its holdings via a special dividend scheme according to which Toll shareholders shall get one share of Virgin Blue for every Toll share they own.

Toll shall spin off total 648.1 million of its Virgin Blue shares or 98.3 percent of its holding that would leave the airlines with 11 million shares. The total dividend handed out to Toll shareholders will be $330 million when the shareholders receive shares on one-to-one basis. A separate share sale facility shall also be offered to the Toll shareholders if they wished to sell off their shares.

Virgin Group is controlled by the billionaire Richard Branson, who announced that after this "in specie dividend" scheme Virgin Group shall become the largest shareholder in the airlines with 25.5 percent stake. Currently Toll is the largest shareholder with 62 percent stake in the company.

Toll had always reiterated that it never planned to be a long term investor in the Virgin Blue that operates domestic flights as well as flies on routes to New Zealand and the Pacific. However, it shall maintain a long term freight agreement with the company. The Toll Managing Director, Paul Little, further added that the decision shall further allow Toll and Virgin Blue to better pursue their own business development strategies. Toll shall be more focussed towards its core logistics business. The transaction would also strengthen Toll's balance sheet, added Toll's Chief Financial Officer, Neil Chatfield.

The markets had been anticipating a trade sale rather than a dividend scheme or share distribution plan. This decision of Toll to distribute majority of its shares will result in $1.3 billion non-cash charge in Toll's 2007-08 year. However, markets view the move as increased liquidity in Virgin Blue's shares which have fallen from $2 from January. The company had been fighting high jet fuel costs by cutting its capacity and reducing its operational costs.

Toll's shares rose 1.57 percent or $6.48 in early trading while Virgin Blue witnessed hike of 1 cent to 51.5 cents.