Qube about to cash up and go after piece of Toll Holdings

Qube has made no secret of the fact that some parts of Toll would be of interest, particularly its divisions servicing the resources industry, including its bulk freight operations, oil and gas logistics arm.

As Qube Holdings moves increasingly closer to selling its $2bn Moorebank Logistics Park to property investor Logos Group, attention is turning to its next potential takeover target, Toll Holdings.

It is expected that a next step for Qube will be competing for parts of the Japanese-owned logistics business Toll, which is up for sale through JPMorgan and Nomura.

It is understood that information memorandums are expected to hit the desks of buyers in one to two months and one of the challenges facing Toll is that some of the properties that it sold and leased back to raise capital remain vacant, despite the company having to pay rent.

Qube has made no secret of the fact that some parts of Toll would be of interest, particularly its divisions servicing the resources industry, including its bulk freight operations, oil and gas logistics arm, and potentially its government services operation.

However, should Toll’s owner, Japan Post, opt for a break-up, another party that some think may be in the mix for assets is Australia Post.

As Australia Post struggles to keep up with postal demand amid the pandemic, one positive move for the company could be the acquisition of Toll’s parcel delivery division, Express, which some say would offer some much-needed support for the Australian government-owned service provider.

However, when it comes to encouraging Australia Post to engage, the advisers for Toll face a number of challenges.

These include convincing the Australian Competition & Consumer Commission to enable the transaction to happen, given that it would involve Australia Post having more than 80 per cent of the market share.

Politics could also be a hindrance, with the government potentially hesitant to allow Australia Post to buy a business from another sovereign-owned organisation.

Japan Post is listed, but the government remains the major shareholder and it has placed Toll Holdings up for sale after writing off more than $4.8bn of the value.

The plan at the time for the company when it outlaid $6.5bn to buy the business in 2015 was to increase the price-earnings ratio of the listed Japan Post, which had a low PE, by acquiring a company with a high PE.

Japan Post has since invested $2bn in Toll Holdings over the past three years. But its objective for it to be cashflow positive by April was not met.

The problematic part of Toll’s business is express freight forwarding, which some believe may not find a buyer.

Toll sunk $99m into the red last financial year, and while it is highly challenged, many expect that Japan Post will be reluctant to place it into voluntary administration or liquidation because it would be liable for about $700m worth of redundancy costs.

The resources industry component of Toll that is believed to be of interest to Qube could potentially cost Qube more than $500m.

The operation includes logistics services provided to the maritime industry, where there is understood to be substantial growth.

That operation complements what Qube already carries out in the area of oil, gas and bulk commodities.