Virgin Blue dividend infuriates Toll

SYDNEY - Australian budget airline Virgin Blue will pay shareholders A$262 million ($280 million) in cash, despite annual profit falling 33 per cent on higher fuel costs.

The announcement has drawn fire from Toll Holdings, which has launched a A$4.6 billion hostile bid for the carrier's majority owner.

Shares in Virgin Blue Holdings, in which ports operator Patrick Corp owns 62.4 per cent, rose by as much as 9 per cent to a seven-month high after it announced its first-ever dividend of 25Ac a share.

The payout, more than double the airline's annual profit, gives Chris Corrigan's Patrick almost A$164 million in cash to defend the hostile takeover by Toll, based on Bloomberg's calculation of Patrick's holdings filed in April.

Toll, Australia's largest land transport company, said Patrick was forcing Virgin Blue to pay the dividend "to help plug part of its cash flow deficit as part of its takeover defence".

A Patrick spokesman said: "This is just the standard hollow rhetoric they put out in every press release. There is no cash-flow problem."

A key supporter of Toll's bid, Richard Branson's Virgin Group, which owns 25.6 per cent of Virgin Blue, said it was disappointed by the way the board had dealt with the dividend.

Branson said three board directors of Australia's second-biggest airline had voted against the dividend. Those directors were David Baxby, Patrick McCall and Brett Godfrey, who is Virgin Blue's chief executive.

Patrick said Branson had breached board confidentiality.

"If Toll succeeds it would hand de facto control of Virgin Blue to Branson at a ridiculously low price," the spokesman said.

Godfrey declined to comment on Branson's naming directors.

He said Virgin Blue, which competes against Qantas, would now work to attack business passengers.

Net profit for the year ended September 30 dropped to A$105 million from A$157 million a year earlier. The company changed its accounting period this year and said last month that it expected an annual profit of about A$105 million.

Lower oil prices propelled the share price higher to close 9 per cent up at A$1.82, still 19 per cent below the 2003 issue price of A$2.25 a share.

In August Toll launched a scrip-and-cash offer for Patrick to create Australia's largest transport company. Patrick rejected the offer as a crude attempt to stymie a competitor.

Toll's chief executive Paul Little wants to buy Patrick to control the flow of goods in Australia from their arrival at ports to final delivery.

As part of the offer Toll plans to reduce Patrick's stake in Virgin Blue by allowing Branson's Virgin Group the opportunity to buy a bigger interest of up to 40.6 per cent.

The antitrust watchdog is due to make a ruling on the bid by December 21.

- REUTERS , BLOOMBERG