Paul McIntyre: Branson looking to Toll to get back at Corrigan

Richard Branson is plotting his revenge against Chris Corrigan, the former merchant banker turned corporate chief who snatched majority control in a bloody battle earlier this year of Branson's Australian aviation baby, Virgin Blue.

Corrigan is not a bad street fighter, of course, playing a key part with the Federal Government, in smashing the union's control of the waterfront in 1998.

But Branson, in Sydney this week for Virgin Blue's fifth birthday celebrations and a meeting or two with a new anti-Corrigan ally, is loosening up his rhetoric on Corrigan and the listed company he runs, Patrick Corp.

Patrick is trying to defeat a hostile A$4.6 billion ($4.92 billion) takeover bid from a sometimes joint-venture partner, Toll Holdings, led by its chief executive, Paul Little, who is backed by Branson. Both companies are large transport and distribution groups in road and rail and for Patrick, ports is a big earner.

It was Branson who provided renewed impetus for Little to make a raid on Patrick after Corrigan played turncoat with the British knight - the two were friendly enough joint-venture partners in the listed Virgin Blue airline until earlier this year. But that was before Corrigan wooed investors against Branson's will to gain majority control of Virgin Blue.

Just how furious Branson is at Corrigan surfaced this week when he accused Corrigan of costing Virgin Blue more than A$100 million in lost profits by failing to hedge against rising oil prices and for a slow introduction of a frequent flyer programme.

Branson's other airline operations, such as Virgin Atlantic and Virgin Express, all hedged their oil contracts. Last month, Virgin Blue reported a full-year drop in profit to A$105 million for 2004-05. The decision not to hedge oil also amplified Virgin's troubles because Qantas did, giving it a lower operating cost base and handing it more flexibility to cut airfares.

Branson also complained this week about Corrigan raiding Virgin Blue's cash reserves by voting for the airline to pay out A$262 million in dividends, 62 per cent of which went to Patrick. And in an unorthodox move for boardroom politics, Branson "outed" Virgin Blue's chief executive, Brett Godfrey, and Virgin Group's representatives on the board for opposing the big dividend splurge.

All of these supposed Corrigan naughties are fuelling Branson's resolve to get control back. And if Toll succeeds, it will deliver Branson that. He and Little have struck a deal which will allow Branson to buy back majority control of Virgin Blue if Toll gets Patrick.

Branson also flagged his intention this week to take Virgin Blue into other international markets, namely the US and Japan routes, and to introduce business class seats, all at the risk of upsetting Singapore Airlines, which holds a 49 per cent stake in Virgin Atlantic. Singapore Air is desperately trying to convince the Australian Government to allow it to operate Australia-US flights as well as access to the domestic market.

But Virgin Blue's expansion, says Branson, is contingent on his regaining control. On the Singapore Airlines conflict, Branson is unmoved (if he does expand further abroad he is unable to use the Virgin mark due to an agreement with the Singapore carrier).

"I offered Singapore Airlines [the chance] to come in with Virgin Blue when we originally [launched] and they decided not to," he said. "So they've always realised that we would be competing in one part of the world and be friends in another part of the world. But that's business.

"I think the Australian Government just needs to decide whether to allow Virgin Blue to get up and become a strong competitor to Qantas domestically and internationally."

Before all of that can happen, though, Little and Toll Holdings have got to convince the competition regulator that a Patrick takeover will not lessen competition, particularly in railways.

So far the regulator is unconvinced and is in ongoing discussions with Toll over concessions in a post merger. A final ruling from the Australian Competition and Consumer Commission is due on December 21 and Branson, at least, is upbeat.

"If, God forbid, Toll fail in what they are trying to, my best guess is that I'll have to dig deep into my pockets and get a few other friends and try to find another way of buying out Patrick Corp."

But first he'll have to again cuddle up to a cross Corrigan. Not a pretty thought.