Patrick poised to win Virgin

SYDNEY - Patrick Corp chief executive Chris Corrigan is poised to take control of Virgin Blue Holdings, Australia's second-biggest airline, after making a hostile A$1.1 billion ($1.18 billion) takeover bid for the discount carrier.

Patrick had 49.03 per cent of the airline, the Sydney-based company said yesterday, up from 45.4 per cent when it made its offer on January 28.

The company, Australia's biggest port cargo handler, on Tuesday extended its bid for the rest of the Brisbane-based carrier until March 22.

Control of Virgin Blue, founded by UK billionaire Richard Branson, would allow 57-year-old Corrigan to focus on profitable routes rather than slashing prices to lure customers from rival Qantas Airways.

Virgin Blue cut its earnings forecast twice in five months after a price war with Qantas.

Corrigan "has a record of delivering in tough markets and Qantas is a formidable competitor who uses every bit of muscle it has", said George Raftopulos at Constellation Capital Management in Sydney.

"You need someone who is absolutely ruthless and Chris has shown he can play in that area."

Raftopulos said he sold his Virgin Blue shares after the company cut its earnings forecast.

Branson's Virgin Group owns about 25 per cent of Virgin Blue.

Patrick has offered A$1.90 a share for Virgin Blue. The stock was trading up 1c at A$1.91 at the close of trade in Sydney, after falling to the bid price on Tuesday for the first time since Patrick made its offer.

Under Australian takeover rules Patrick can buy shares at the A$1.90 offer price on the stock exchange. A parcel of 1.39 million shares, or 0.1 per cent of Virgin Blue, traded at that price earlier yesterday, according to data compiled by Bloomberg.

Patrick shares rose 6c to A$6.34.

Corrigan made his bid just nine days after Virgin Blue chief executive Brett Godfrey, 42, said a price war with Qantas's budget carrier Jetstar would cut annual profit by as much as 15 per cent.

The second profit downgrade in five months sent Virgin Blue shares tumbling 13 per cent to A$1.74.

"Corrigan comes with a reasonably good reputation as a person who can fix things and there is a view that this company needs some fixing," said Constellation's Raftopulos.

"The market is looking for a strategy that plays to the cost strengths of Virgin Blue and is saying that Chris can do just that."

Branson, 54, started the airline in 2000 with US$10 million and two planes. The collapse of Air New Zealand's Australian unit Ansett in September 2001 helped Virgin Blue increase its share of the domestic air travel market to about 30 per cent. Virgin Blue now has 50 planes flying 59 routes. Patrick has three of the eight seats on Virgin Blue's board.

Corrigan stepped aside as chairman after making his takeover bid.

"It's very difficult for a business to survive, thrive and follow a cogent strategy under two different masters," said Andrew Cain, who holds Patrick shares for the equivalent of US$5.4 billion he helps manage at Dimensional Fund Advisers.

"Corrigan would have very specific views about some things that may not coincide with current management." Corrigan came to prominence in 1998 when he led a campaign to break the power of maritime unions at Patrick's ports, triggering a two-month strike that blocked half of the nation's imports and exports. The waterfront dispute pushed Patrick to a A$63.5 million loss that year.

- BLOOMBERG