What is the total cost of the second hand trains and ferries?

It gets scary when you start to add up the total cost of Dr Cullen’s buying spree.

Now one can always argue about what an asset is worth, but we actually know that Toll purchased it for $394 million in 2003. And the book value is $430 million.

Now Toll convinced the Government to pay $665 million for it. But on top of that you have the foregone revenue from Toll for track use, which has been $48 million a year, but is meant to be $58 million a year. If you capitalise that at 7% that is another $830 million equivalent capital. So the Government has effectively tied up capital of around $1.5 billion. In theory there will be income to offset that, but time will tell as to how much that will be.

But it gets even better for Toll. They also get a six month rent free period on existing premises – must be worth a few million also.

The Fairfax story quotes Toll managing director Paull Little as saying:

“I think we’ve got mixed emotions. We would have preferred not to have sold.

“Today is a day we feel pretty flat,” he said.

I’ll bet you they have no mixed emotions at all. The sale agreement probably included a no gloating clause. Toll have made a massive profit from Dr Cullen. I doubt they can beleive their luck.

I know something about dealing with an Australian company when selling or buying a business. Let me tell you they are the most ruthless bastards around. No matter how friendly and nice it all is, they will aim to screw you for every extra dollar. It is nothing personal – just how they do business. So even if it is a multi-million dollar sale, they’ll take you for an extra $20,000 if they can – just because they can.

And Dr Cullen had shown how keen he was to buy. This was a fatal mistake which strengthened Toll’s negotiating position massively. You have to have the other side thinking you are prepared to walk away if they don’t budge.

I could just have imagined the talk around Toll after each negotiating session. “Oh my God, we have them up to $600 million – who would have believed. Hey let’s go for $650 million just to see how desperate they are. Nah, don’t be a soft cock – I reckon we should ask for $700 million and see if we can get them over $650 million”.