Toll Group (ASX: TOL) is handing over railroad rights. The transport and logistics company announced today that it has agreed to sell its own North Queensland rail service operations to Asciano's (ASX: AIO) Pacific National Rail.
Expected to be completed by February 2014, the move has been hailed as a further strengthening of the two corporations' relationship and a financial boost for Toll Group. "This agreement is a very positive transaction for Toll and all of our North Queensland customers," said Toll Group Managing Director Brian Kruger in a statement. "The deal allows us to continue to provide Toll Intermodal's customers with long-term access to quality rail infrastructure and significantly enhances the operational flexibility of our North Queensland business. It also reduces capital employed in this part of the business, which will result in an improvement in our return on invested capital."
The 13-year haulage agreement allows Toll to continue to service its North Queensland customers, while handing over day-to-day operations to Asciano. The two companies have extended their current interstate rail haulage agreement to 2022, and Pacific National Rail will acquire five North Queensland terminals for around $70 million.
Foolish takeaway
Toll is Australia's largest transport and logistics company – but bigger isn't always better. This agreement allows Toll to continue to do what it has always done, without sucking up capital that could be used elsewhere. Asciano's newly acquired assets were sold by Toll at book value, which leaves Toll with a clean cut and Asciano without worries of overinflated investments.
The new deal also takes care of a regulatory railblock. Starting next year, new minimum rail volume obligations on Toll in North Queensland might've proved troublesome for the company. With ownership handed over to Asciano, Toll Group no longer has to worry about hitting its regulatory quota.
