Toll Holdings Ltd - s.87B undertaking

Toll Holdings Ltd (Toll) has provided section 87B undertakings to the ACCC in relation to Toll’s acquisition of Patrick Corporation Ltd.

Background

On 22 August 2005 Toll announced its intention to make an offer for all the shares in Patrick that it did not already own (the Proposed Acquisition). On 22 September 2005 Toll provided its submission seeking informal clearance from the ACCC.

On 10 November 2005 the ACCC released a Statement of Issues in relation to the Proposed Acquisition, outlining a number of competition issues.

Subsequently Toll offered the ACCC a number of iterations of an enforceable undertaking to alleviate the ACCC’s concerns. On 18 January 2006 the ACCC determined to oppose the transaction, finding that the enforceable undertakings offered by Toll did not alleviate those concerns.

The ACCC instituted proceedings in the Federal Court of Australia on 9 February 2006, seeking injunctive relief to prevent the proposed acquisition occurring and declarations that the Proposed Acquisition would be likely to have the effect of substantially lessening competition in a number of markets.

On 1 March 2006, Toll offered to the ACCC and to the Federal Court a more extensive enforceable undertaking than previously offered. A further revised undertaking was offered to the ACCC on 11 March 2006 (the Undertaking).

On 11 March 2006, the ACCC accepted the Undertaking and discontinued proceedings in the Federal Court.

The Undertaking

Toll has undertaken to divest:

• 50 per cent of the shares in Pacific National;
• the Minto siding in Sydney;
• Patrick's Bass Strait shipping and freight forwarding operations;
• Toll’s interest in PrixCar; and
• either Toll's or Patrick's vehicle transport distribution business.

Toll is also undertaking to relinquish its interest in the Dynon rail terminal (the terminal formerly operated by Freight Australia in Melbourne commonly referred to as North Dynon), as well as surrounding tracks and land that will permit the terminal to be used more effectively for long interstate trains.

Toll has undertaken to provide access to a new east-west operator at Pacific National's South Dynon terminal in Melbourne and the Chullora terminal in Sydney.

In relation to train paths, Toll has made various commitments, including giving up five train paths, that will assist a new operator in obtaining suitable train paths.

Toll has undertaken to sell or lease 12 locomotives for use on the east-west corridor. Toll has also undertaken to sell or lease enough wagons for a new east-west operator.

Toll has committed to providing ancillary services to a new operator, including crewing, fuelling, provisioning and maintenance.

In relation to Toll's interest in Pacific National, Toll has undertaken not to increase its economic interest in Pacific National beyond 50 per cent and undertaken that the Pacific National Shareholders Agreement will not permit control of the Pacific National board by Toll.  Toll has also undertaken that all dealings between Toll and Pacific National will be on an arm's length basis and Toll will not have access to confidential customer information from Pacific National or involve itself in the commercial operations of Pacific National. In addition, Toll has committed to non-discrimination clauses, that will prevent Pacific National discriminating in favour of Toll’s own downstream freight forwarding interests. Auditing provisions are included to assist in ensuring Toll’s compliance.

In relation to the landside operations connected to Patrick's port operations, Toll has undertaken that it will not discriminate in favour of Toll's or Patrick's freight forwarding or logistics operations in terms of price or service quality.

The Undertaking requires Pacific National to continue to provide hook-and-pull services to SCT until SCT obtains its own locomotives.

In addition to the above commitments, there are clauses in the Undertaking that:

• permit the ACCC to object to potential purchasers of the divestment assets;
• satisfy the ACCC's concerns relating to the possibility that Toll may not be able to deliver on the undertakings due to opposition from Patrick shareholders;
• lead to the appointment of an agent to sell assets in the event that Toll has not sold them by a certain date;
• ensure that the Pacific National's Shareholder Agreement accommodates Toll's commitments;
• ensure that assets to be divested are preserved until divestment; and
• require that Toll not to exercise Patrick's option to acquire FCL Interstate Transport Services.