Virgin holds out for much higher bid

Virgin Blue Holdings has rejected Patrick Corp's A$1.1 billion ($1.2 billion) takeover bid as too low, saying the airline's shares are worth at least 28 per cent more.

Virgin Blue told the Australian Stock Exchange that the shares were worth between A$2.43 and A$2.90 each.

Patrick, Australia's largest port handler, is the biggest shareholder in Virgin Blue with 45.4 per cent.

Last month it offered A$1.90 a share to buy the remaining 54.6 per cent from shareholders including Britain's Virgin Group.

Patrick chief executive Chris Corrigan wants to change the airline's strategy to end a price war with Jetstar, the discount unit of Australia's largest carrier, Qantas Airways, to boost earnings.

His company made its takeover bid nine days after Virgin Blue cut its profit forecast for the current financial year, causing a 13 per cent fall in its share price. The airline said its profit for the year to March 31 would drop by 10 to 15 per cent from A$158 million a year ago.

It was selling tickets for as little as A$1 plus fees and taxes after Jetstar offered A$9 tickets, and the company's expansion of its fleet has also sliced into earnings.

It filled 78 per cent of available seats in January, down from 85 per cent a year earlier.

Virgin Blue said the Patrick offer was timed to take advantage of the weakness in the share price, which did not reflect the potential long-term value in the company.

The Virgin Group also said it would not sell its 25.1 per cent to Patrick at the current offer.

But Patrick described Virgin's estimate of share value as "fundamentally flawed and ludicrously inflated".

"Patrick stands by our offer of A$1.90, which in all the circumstances is fair and reasonable."

Rob Patterson, who owns Patrick shares among the A$1.6 billion he helps manage at Argo Investments in Adelaide, said Patrick's bid was "opportunistic".

"Given the valuation they've trotted out, I wouldn't be surprised if Corrigan walks away from the bid."

Singapore Airlines - Patterson's suggestion as the only other likely bidder for Virgin Blue - said it wasn't interested.

Corrigan stood aside as Virgin Blue's chairman when the takeover bid was made, leading to speculation that board meetings may be tense if it failed.

Virgin Blue has won about one-third of Australia's air-travel market since it began flying to popular tourist destinations such as Cairns and the Gold Coast.

The airline's fleet has expanded to 51 planes from two in 2000 and it has added an subsidiary that flies to New Zealand, Fiji, Vanuatu and the Solomons.

- BLOOMBERG