Australia's Toll Holdings Ltd moved on Monday to offload its stake in airline Virgin Blue Holdings Ltd via a special dividend to shareholders and took a A$1.3 billion ($1.2 billion) charge to reflect the lower value of its stake.
Logistics group Toll's decision to hand the Virgin Blue stake to its shareholders follows a lukewarm response to its previous attempts to sell the 62.7 percent to third parties. Investors welcomed the decision by pushing up Toll shares as much as 7.1 percent in a lower overall market, saying the company could now focus on its core logistics business.
"What it means is that your assessment of Toll won't be confused by the fact that they have got an investment in the airline," said Ross Barker, managing director of Australian Foundation Investment Co, which owns Toll shares.
Toll acquired the Virgin Blue stake following its A$6.3 billion acquisition of ports operator Patrick Corp in 2006. Toll said on Monday it planned to sell down most of its holding, valued at about A$343 million, by giving its shareholders one Virgin Blue share for every Toll share.
"Obviously, Toll shareholders have to work out what they have to do with their distribution of Virgin Blue," Barker said, adding that the move would be viewed positively by shareholders.
Toll is being advised by Goldman Sachs JBWere and Deutsche Bank. Virgin Blue shares have been hit hard by rising fuel costs. The shares are down about 73 percent this year, compared with a 21 percent fall in the benchmark S&P/ASX 200 index. By 0110 GMT, Toll shares gave most of its earlier gains to trade up 2.2 percent, while Virgin shares were up 1 percent.
The transaction would help Toll to focus on its core global logistics business, the company said. Toll's decision would also mean that British entrepreneur Richard Branson would emerge as the biggest shareholder in Virgin. Toll's net debt following the transaction would be about A$650 million, giving it room to pursue its growth strategies.