Toll struggles to sell its stake in Virgin Blue

[jakeseven7]

Toll still having problems offloading Virgin... perhaps we will see them flick it back to Richard Branson after all...!

I find it a little bizarre that SQ isn't at all interested in an Australian airline anymore, I mean it will take a while to build TT up...I thought EK might be interested too, but I guess DJ is too far from their operating model.... Lets hope that Air NZ doesn't decide it wants an Australian airline again JOKES!



Toll struggles to sell its stake in Virgin Blue

• January 2, 2008

TOLL HOLDINGS is struggling to find a buyer for its 62.3 per cent stake in Virgin Blue months after putting a for sale sign on its majority shareholding in the airline.
The transport company had hoped to complete its "review" of its investment in Virgin Blue by the end of 2007. But buyers rumoured to have an interest in the stake, such as the Texas Pacific founder David Bonderman, have failed to surface.

Toll struggles to sell its stake in Virgin Blue | smh.com.au

 

[alien]

anyone know what the deal is worth?

 

[JohnK]

Branson not showing much interest?

 

[jakeseven7]

Branson not showing much interest?

Its pretty complicated... here is the 101: Branson helped Toll out with the whole Patrick takeover thing, Patrick had difficult relationship with Branson to put it mildly so he was more than happy to help them be swallowed up.

It was understood during the takeover that when Toll got Patrick they would then lose Virgin pretty quickly and sell back a significant chunk back to Branson. Toll were never interested in keeping a majority stake in Virgin - it was just a by product of Patrick and they don't see it as being at the core of their business... (which is a bit strange seeing they are in logistics but anyway!). My bet is that they will set up a long term freight agreement before they manage their stake down.

Suddenly Toll decided it didn't want to sell to Branson for some reason (people have speculated that Branson didn't want to pay what Toll thought DJ was worth) and there wasn't a contract or anything for Branson to fall back onto to force them. So relations with Branson and Toll became icy. It was a good call though for Toll if they can sell DJ since the share price has gone up since then.

So this year everyone knew Toll was looking to offload DJ and Branson was not automatically at the top of the list. The usual suspects (SQ, EK even NZ <lol> according to that article) and private equity have been approached but no deals as yet - according to this article at least. Other articles have Toll quoted as 'We will be announcing DJ's future in Jan/Feb' so who knows!!

I'm sure Branson is still interested but not sure if he'd want to take the whole airline or if he has even been involved again... I'm sure Toll may still hang on to a smaller % of DJ as well.

I find it all a little suprising because from the financial records at least it seems like a healthy business...which should have been easier to sell. Fair enough expansion has slowed (this is what analysts will often point to) but that doesn't take into account the fact DJ did come from high growth numbers thanks to Ansett collapsing etc.

My gut says Toll has got a buyer(s) - I think this article is fairly negative... but whatever happens, hopefully DJ gets bought by someone serious about running an airline this time... Personally I'm still holding out hope that another airline gets them, preferably a Star Alliance airline Selfish I know!!

 

[jakeseven7]

anyone know what the deal is worth?

Anything from 1.0 to 1.6 billion depending who you listen to...

Got some spare change?

 

[alien]

I wonder if the bank would lend that to me????

Would be nice, real nice.

 

[Evan]

Anything from 1.0 to 1.6 billion depending who you listen to...

Got some spare change?

Sounds expensive to me compared to QF !
Virgin's assets are not that great so the value would need to be in the name etc. I am sure its not a bad buy just more than i would have expected, well at the top end of the estimate.

E

 

[swissbignose]

From what I remember (and I'm by no means an authority on this by any stretch of the imagination), the Virgin name is licensed to DJ by Virgin. IIRC, Singapore Airlines has some say in how the name can be used in Asia-Pac.

The airline, without the name, is not worth much. IMHO.

I would hazard a guess that Sir Richard would love to buy it all back.. at a greatly reduced price to what he made it out to be worth all those moons ago, naturally.

 

[Petch]

Virgin's assets are not that great so the value would need to be in the name etc.

May I suggest quite the opposite. The name has negative value, and the assets are the only thing of interest to a potential buyer.

I have no idea of the precise details, but would imagine the licensing requirements for the “Virgin” brand are onerous, and there would probably be enormous penalties, payable to Branson, should the name be dropped.

I think any airline purchaser, (even if Branson continues as a minority shareholder), would want to implement their own identity, standards & procedures with their purchase (for various reasons).

We also need to take note of Branson’s desires - he seems intent, rather haphazardly, in creating his own global airline system. This would conflict with any buyers’ advantage; of consolidating Virgin Blue into their existing system. We witnessed the ludicrousness of this situation recently, when Branson unilaterally announced that Virgin Blue would tie up with Malaysia’s Air Asia X, not acknowledging that Virgin Blue already has alliance arrangements with the competiting Malaysian carrier.

“V Australia” further complicates things, I am not aware that the market has been informed how the airline group is going to pay for all its new 777s. And for a publicly listed company, with a launch date of this year, that isn’t a good situation. Plus any further foreign ownership of Virgin Blue, may complicate V Australia’s ability to meet foreign ownership regulatory requirements.

As an overview, the “Virgin” brand is really only useful as a means of cutting through clutter with a clear message in a competitive market, aimed at a distinct niche segment. The approach is designed to facilitate maximum segment penetration in minimum time, and for the business co-owners to then sit back and enjoy the investment as a "cash cow". Excitingly/unfortunately, the market, and Virgin Blue's position within it, has moved on substantially from this launch position.

So the value of Virgin Blue –
· It’s terminal space
· Various legal/licence/certificates etc, in its name
· Some of its slot capacity (not otherwise available)
· Some of its work force (e.g. pilots)
· Some of its customer base
· Some of its aircraft/other capital

This is all devalued by
· Virgin Brand licensing
· Branson wildcard/inflexibility

Maybe the future for Virgin Blue ownership is Toll selling part of its holding to Branson, and floating the rest in share market parcels over time... Who knows? (certainly not me.)

Hopefully February will bring some ownership certainty, which will enable the airline's (long suffering) management to move forward with a suitable market plan.

 

[Yada Yada]

Geez, such negative comments! I must be living in some other world.

Virgin Blue has been a wildly successful business any way you look at it. They are the number two airline in the country with a sizeable fleet and network. They have won a number of international awards, are consistently profitable, constantly expanding, come up with new initiatives not seen before in the market, and provide vital competition with QF that has forced it to pick up its game and drop its prices.

I honestly do not know why so many posters on AFF feel the need to talk VB down so often!

 

[Evan]

I don't think people to talk it down as such, as it is as you say the number 2 airline and doing well, just no way i think people thinks its worth the money that has been suggested it is worth. Especially since what they valued QF at, 1.0-1.6 seems very high for a 75% stake.
E

 

[Petch]

Geez, such negative comments! Virgin Blue has been a wildly successful business any way you look at it.

Perhaps implicit, but I will make it explicit, is that if my analysis is correct, the Virgin Blue management team have done an incredible job. I imagine dealing with a duelling board room is no mean feat, and the airline has certainly not stood still over the last few years!

 

[JohnK]

They are the number two airline in the country with a sizeable fleet and network.

Not very hard to achieve. I think if you and I started an airline in Australia we could get to be the number 3 ariline in no time at all.

I honestly do not know why so many posters on AFF feel the need to talk VB down so often!

There are many factors involved here. One is perception. They are a LCC, which is not reflected in the airfare prices, trying to compete with QF.

They have introduced a mickey mouse FF program and achieving status is beyond most people. Am I correct in assuming that Gold status comes in at 50,000 SCs. At 3 Velocity points per dollar that would be ~$16,666 worth of flying to achieve top tier. Remember that I can get QF Platinum with a spend of <$8,000/year. There are other people who spend less than me.

With QF I have access to more airlines with the Oneworld alliance. I have access to more airports. I have access to more lounges. I have access to more scheduled flights between most destinations. I have access to more FF partners. I feel QF has better customer service.

Now maybe my opinion will change in May once I have flown DJ. Just maybe. Time will tell....

 

[adamonline]

There are many factors involved here. One is perception. They are a LCC, which is not reflected in the airfare prices, trying to compete with QF.

I think we can say they have moved on from their original LCC model. I think they are definately closer to QF than they are to Tiger these days.

They have introduced a mickey mouse FF program and achieving status is beyond most people. Am I correct in assuming that Gold status comes in at 50,000 SCs. At 3 Velocity points per dollar that would be ~$16,666 worth of flying to achieve top tier. Remember that I can get QF Platinum with a spend of <$8,000/year. There are other people who spend less than me.

The cost to acheive Gold status on Velocity is around $8000 spend per 12 months. The earn rate (for both points and status credits) is actually 5 points per dollar for no status Red members, 6 for Silver and 7 for Gold.

It is quite true to say QF has more partners. Travelling internationally, the Oneworld alliance provides many more benefits than DJ do. Until there are more partners and lounge sharing in the Velocity program it is hard to tell any regular international traveller to go with DJ and Velocity. People may disagree with your last point on QF having better customer service. From others comments on here it seems there are good and bad apples in both.

At least we have DJ around to keep QF on it's toes. And please post your thoughts about you're first DJ flight coming up.

 

[littl_flier]

Just to provide some stats RE. the sale of the business.

At 30 June 07, 1,041,691,560 shares were on issue. Toll has a 62.3% stake.

Estimate of 648,973,842 shares.
Closing Price of VBA (4/1/08): $2.10

Estimated Value of Toll in VBA: $1,362,845,068

source: www.commsec.com.au & http://imagesignal.comsec.com.au/asxdata/20070924/pdf/00761831.pdf (big- VBA Annual Report)

Take into account Total Net Assets of $745m though and it's a different story.

 

[Yada Yada]

Not very hard to achieve. I think if you and I started an airline in Australia we could get to be the number 3 ariline in no time at all.

I'm not so sure, John. I think it has taken considerable effort for them to get where they are now. I realise that the collapse of AN created a void that they could exploit, but they've had to contend with a fierce competitor in QF, one of the world's most successful and profitable airlines. QF's comprehesive network, fleet, cash reserves and federal government connections would be bloody tough to crack.

They have introduced a mickey mouse FF program and achieving status is beyond most people. Am I correct in assuming that Gold status comes in at 50,000 SCs. At 3 Velocity points per dollar that would be ~$16,666 worth of flying to achieve top tier. Remember that I can get QF Platinum with a spend of <$8,000/year. There are other people who spend less than me.

Yes, Velocity Gold requires 50,000 SC's but the earning rate is 5 points per dollar at the Red status level, not 3. So that would mean a $10,000 spend if only flying domestically.

However, assuming that most members would make it to Silver first with a $4,000 spend, they would then earn at 6xSC's per dollar so that makes the cost of reaching Gold $8,333. Once at Gold level, the cost to retain (earning at 7xSC's per dollar) is $7,143.

QF requires 1,400 SC's to reach Platinium. Say if you achieve this on Red-e-deal fares, earning 10xSC's on a typical SYD-MEL sector costing say $95 a pop, that would require you to fly 140 flights with total cost of $13,300.

Assuming that FF's will do some international travel and perhaps in premium cabins, then it becomes easier with either airline to achieve status. Following is an example of what can be earned with VB's partner MH:

Between		Points Earned on Return Flights 	

KUL and:		From	Up to
		(Disc Economy) 	(First) 
Sydney			5,726	12,270
Melbourne		5,499	11,784
Brisbane		5,600	12,000
Adelaide		4,942	10,590
Perth			3,599	7,713

London and:		
Sydney			14,947	32,031

Take one or two international flights and Gold is not so difficult to achieve.

With QF I have access to more airlines with the Oneworld alliance. I have access to more airports. I have access to more lounges. I have access to more scheduled flights between most destinations. I have access to more FF partners. I feel QF has better customer service.

Agree regarding partners. It will take time for VB to acquire more but it is happening bit by bit. I don't agree re QF's customer service. Heck, that's one of my main beefs with QF.

Now maybe my opinion will change in May once I have flown DJ. Just maybe. Time will tell....

If you like QF's service style then you may not like VB's which is more informal. But we'll see.

 

[pauly7]

Geez, such negative comments! I must be living in some other world.

Doesn't seem that negative about the actual airline YY, - it is actually quite interesting reading about the business ownership history and future of DJ. The negativity is directed at some less than ideal owners/circumstances - and its great that DJ has continued to suceed despite these people being involved.

Thanks to all for posting so much information.

YY, It's no one at DJ's fault (and therefore not a reflection on the airline) they have had 5 major changes of ownership and have been treated a bit like a hot potatoe! If you recall, Ansett went through the same thing over a similar(ish) time frame and QF to a lesser extent with BA checking out etc. Its just corporate business talk so don't take it so personally

I also note everyone is willing a great new owner/part owner for DJ - and I will add myself to that list!

Agree regarding partners. It will take time for VB to acquire more but it is happening bit by bit. I don't agree re QF's customer service. Heck, that's one of my main beefs with QF.

If you like QF's service style then you may not like VB's which is more informal. But we'll see.

I have to say that despite having an personal ongoing feud with Velocity, a subsidary of DJ which is re-writing the definition of poor customer service for me at the moment, DJ (airline) service is still reliable and of a high standard.

In their effort to lose the LCC tag they have done away with most extreme of the informal elements (and people ) and have become more professional and similar to QF in terms of customer contact. I think John may be pleasantly suprised at the lack of farting jokes !!

I honestly think QF's set up allows their staff to be more helpful, DJ are restrained by their operational red tape sometimes.

However I think QF, DJ and JQ even lol have generally very high levels of customer service disregarding the limitations they have placed on them.

 

[Arthur Hodgson]

I have to say that despite having an personal ongoing feud with Velocity, a subsidary of DJ which is re-writing the definition of poor customer service for me at the moment, DJ (airline) service is still reliable and of a high standard.

I must be missing something.

I always though DJ and its offshoots were cough.

Or could I express that more genteelly?

 

[JohnK]

I think we can say they have moved on from their original LCC model. I think they are definately closer to QF than they are to Tiger these days.

You could well be right but I will stick to my original description until I have had a chance to fly with them.

The cost to acheive Gold status on Velocity is around $8000 spend per 12 months. The earn rate (for both points and status credits) is actually 5 points per dollar for no status Red members, 6 for Silver and 7 for Gold.

I do apologise as I was under the impression that it was 3 points per dollar.

So it would take $4000 worth of airfares to reach Silver and then another $5000 worth of airfares to reach Gold. I understand that SCs are only earned with Virgin Blue, Pacific Blue and Polynesian Blue flights. That is a very limited choice of carriers.

Complimentary lounge access is given with Gold Status? I am certain it is possible to reach QF Gold, and complimentary lounge access, with a spend of less than $4000

To me it still looks a lot more difficult to get status with DJ than getting status with QF anyway. Especially when you have access to cheap I class airfares with AY and CX, cheap YUPs/QUPs with AA and rapid SC accumulation with DONEs and AONEs.

 

[jakeseven7]

I must be missing something.

I always though DJ and its offshoots were cough.

Or could I express that more genteelly?

Everyone has their opinion, I am by no means a huge DJ (the actual airline) fan... I respect their business model though.

Your word you use summing up DJ I reserve for airlines like Garuda