Toll Group set to offload Global Express division

Toll Group plans to sell its Global Express division, marking the potential break-up of the logistics giant bought by Japan Post in 2015.

The business has suffered a torrid period of trading amid COVID-19 volatility and cyber attacks, losing $100m in the June quarter.

Japan Post faces a battle attracting a top price for Toll Group’s $3.5bn Australian express business with the company’s billionaire co-founder ruling himself out of the bidding due to the task of overhauling the loss-making unit.

The Japanese owners of Toll confirmed a report by The Australian’s DataRoom that it had kicked off a sale of its Global Express division, which delivers parcels around Australia.

The business has suffered a torrid period of trading amid COVID-19 volatility and cyber attacks, losing $100m in the June quarter and raising doubts over the price buyers will be prepared to pay.

Billionaire Paul Little, Toll’s co-founder and former boss, said the scale of the turnaround required was immense.

“It’s unlikely I would bid,” Mr Little told The Australian.

“The business really looks like it’s got a massive challenge to turn it around. So at this stage it’s unlikely.”

Both private equity firms and trade buyers had registered early interest, according to Toll chairman John Mullen, with bids due by the end of this year and a deal potentially wrapped up in the first half of 2021.

The division “is well on the way back”, Mr Mullen said.

“Any potential buyer will be able to see this trend so it is a good time to be considering a sale to another owner.

“There’s been a considerable level of interest in the business from both financial buyers — all the financial names and private equity firms have expressed interest — and a number of large existing trade players.”

Toll said earnings for the Global Express unit improved by $80m in the September quarter. Nomura and JP Morgan are running the sales process.

Toll’s two other divisions, logistics and forwarding, will remain under Japan Post’s ownership and Mr Mullen said the decision to proceed with a sale of Global Express had been brewing for some time.

“Japan’s strategy is to be an Asian-focused logistics business with a global capability, and while we term Global Express ‘global’, realistically it is purely an Australian domestic business.

“Because the results of the division had turned down after Japan Post bought the business, there was a view that the business should try and improve its trading position after the acquisition.

“Such an improvement did initially occur before the company suffered two major cyber attacks plus COVID — a negative trifecta that set the whole process back materially. We are coming out the other side and while the division is not yet performing to where we would like it, it has turned the corner and is delivering a strong improvement in earnings.”

Japan Post bought Toll for $6.5bn in 2015 but the deal has proved disastrous.

The Japanese company booked a shock $4.8bn writedown two years later. It’s since invested $2bn in Toll but a goal for it to be cashflow positive by April was not met.

The mooted sale would allow a new owner to prioritise investment in the business compared with the current situation where it competes among Japan Post’s various business interests.

“It will be good for both sides — it will be good for Express and address the uncertainty there and allows them under a new shareholder to focus 100 per cent on being a domestic express carrier and not necessarily be rationed for capital among other divisions,” Mr Mullen said.

A major cyber attack in January sparked huge problems at Toll after the breach delayed deliveries and forced customer systems offline until early March. Hackers again breached Toll’s IT systems in May with fears stolen data may be put up for sale on the dark web.

Toll’s global forwarding division head, Thomas Knudsen, took over the top job in January after former boss Michael Byrne embarked on a vast global restructuring program with five divisions being reshaped into three, 26 business units shrinking to 11, over 2000 jobs cut and operations in five underperforming countries closed down.

Mr Knudsen took a 40 per cent pay cut in April for a six-month period while some staff were asked to work four days a week in response to a retail slowdown from the pandemic.