Climb in rail shares reflects stand-off

Shares in the former Tranz Rail rose to a year high of $2.78 yesterday, further vindicating those who shunned the $1.10 a share takeover by Australia's Toll Holdings last year.

The rise reflects a continuing stand-off between the Melbourne-based Toll, which now has 84 per cent, and United States fund manager Third Avenue. Third Avenue, with 8.3 per cent, can block Toll from taking full control of the rail operator, now called Toll NZ.

Many investors believe Third Avenue is holding out for $3 a share, but the fund has consistently said it is a long-term shareholder.

"People are betting that Toll will capitulate," said one fund manager.

When Toll NZ shares were $2.26, Toll Holdings managing director Paul Little said a takeout of minorities could not be justified.

The generally held view in the equity market is that Toll will make full takeover one day - and that will cost it.

The rise has also been helped by investors who believe Toll can turn the troubled company around. Tranz Rail was on the brink of collapse last year, but has since been bailed out by the Government and Toll.

"[Toll management] are highly rated," said Tyndall joint New Zealand equity manager Rickey Ward. "There is value in this stock on the turn-around alone.

"At $1.40 it was easy to justify the share price, but at $2.70 you are taking a longer-term view."

Most of the remaining 2000 shareholders are small investors who believe in rail and in New Zealand ownership.