Rail track deal open to others

By PAM GRAHAM

The Government publicly stated for the first time yesterday that its rail track buyback deal with Toll Holdings was available to others if Toll did not take over Tranz Rail.

A "delighted" Paul Ridley-Smith of Tranz Rail shareholder Infratil said the statement sent the right signal to any others considering bidding for the nation's monopoly rail operator.

A new bidder must move two weeks before Toll's bid closed on August 29 to be credible, analysts said.

Bidders must issue a notice of a bid two weeks before mailing the offer and can retreat without penalty in that period, as RailAmerica did after announcing an intention to bid at 75c.

Infratil, which owns 7 per cent of Tranz Rail, had challenged the Government's agreement not to deal with anyone else while Toll's bid was live, concerned that the contest was not fair.

It lost the argument it used to take that issue to the Takeovers Panel - that Toll had been acting as if it was a director of Tranz Rail and was therefore a target company frustrating a takeover.

The panel found in Toll's favour, but said the exclusivity clause might effectively frustrate rival bidders.

"The independent adviser's report prepared by Grant Samuel indicates that the Toll/Crown agreement would provide Toll, as owner of Tranz Rail, with a significant benefit," it said.

"If rival bidders cannot negotiate a similar deal with the Crown they will find it very difficult to compete on value at an equivalent level of conditionality."

Finance Minister Michael Cullen said yesterday that the Toll/Crown deal remained exclusive but if Toll failed the Government would be prepared to negotiate a similar arrangement "were another company able to bring the required skills and capacities to the table".

Ridley-Smith said the statement was a pragmatic way round the exclusivity issue.

Toll's deal is better for shareholders than the first Crown/Tranz Rail track buyback plan even though the cost to taxpayers is about the same.

Toll's managing director Paul Little argues his deal reflects the value of the Toll balance sheet and says no other company is willing to invest as much in Tranz Rail as his company.

Grant Samuel has said Tranz Rail shares are worth between $1.34 and $1.62 if the Toll/Crown deal proceeds, $1 to $1.11 if the Tranz Rail/Crown deal proceeds and 97c to $1.03 if both flop.

Tranz Rail relied on a Government downpayment on the first track buyback deal to meet its obligations in June and its bankers have made it employ an independent adviser to report to them.

Toll is offering 95c conditional on winning total control. Grant Samuel says that is not fair and Tranz Rail directors have advised against acceptance.

Some shareholders want a 50 per cent owner so Tranz Rail stays listed on the stock exchange and they get a ride as minority shareholders.

Little said Toll planned to meet institutions again next week and he was still confident about Toll's bid.

He welcomed transport company Mainfreight's bid for Owens Group, saying consolidation was good for the industry and customers.

Toll owns 19.9 per cent of Tranz Rail and United States railroad company Genesee & Wyoming is believed to own 1.1 per cent through a nominee company.

The US company has a successful joint venture with the highly regarded, diversified West Australian conglomerate Wesfarmers.

Tranz Rail shares closed unchanged yesterday at 99c.