Howard Smith Cleared To Buy Adsteam Tugs

Sydney Morning Herald

Friday May 10, 1991

By EMILIYA MYCHASUK

The Trade Practices Commission yesterday cleared the way for Howard Smith's bid for most of Adelaide Steamship's tugging and towing operations, a move which would deliver to the group dominance at almost all of Australia's ports.

The TPC swept away concerns about the possible merger, saying it would not raise any objections to the plans if they were to go ahead. Howard Smith has pre-emptive rights over the businesses and, together with Adsteam's interests, would control some 60 per cent of the market.

Howard Smith's towage and salvage business alone covers 23 Australian ports- including joint ventures over the main Sydney, Botany and Melbourne ports -and five Pacific ports.

The TPC said it would give reasons for its decision if the acquisition went ahead. The next largest player in the towage business is Brambles, with an estimated 22 per cent.

Howard Smith is understood to already have put in a bid for the Adsteam interests, and is said to be willing to pay $50 million to win.

The industry is noted for its relatively steady market shares, and profit improvements in the past have come from cost reductions, previously very difficult due to the strong unions.

The existing towage division, which had sales of $85 million last year and earnings before interest and tax of $20 million, was expected to ease slightly to $80 million and $16.5 million respectively this year because of a drop in cargo volumes.

This is in contrast with the UK, where its North British Maritime has grown strongly, benefiting from the surge in shipping between the UK and Europe.

However, Howard Smith expects major savings through the current waterfront reform plans and the take-out of the Adsteam interests to significantly bolster long-term management forecasts.

Overall, the operation of tug boats in Australia and the UK already accounts for more than one-third of Howard Smith's total earnings before interest and tax, and the company's strong balance sheet easily can accommodate the towage acquisitions.

Following the sale of its remaining holding in Coal and Allied last month, the company had a cash pile of some $80 million and no net debt.