Toll plays coy on interest in Tranz Rail

By PAM GRAHAM

Tranz Rail's new 6.1 per cent shareholder Toll Holdings is not ruling out a bid for all of Tranz Rail and says Patrick Corp, its partner in Australian rail ventures, could yet be involved.

Tranz Rail shares closed yesterday at 97c on a high turnover of 10 million shares, although the broker acting for Toll was said to be less active.

Toll, which has been doing due diligence on Tranz Rail's trucking business TranzLink, has not announced a rival offer to the 75c a share bid by RailAmerica.

"At this stage I think it is fair to say that our interest is broader than just TranzLink," said Toll's managing director, Paul Little.

"You should not rule out an involvement with Patrick in this."

Toll has a market value of A$2.1 billion ($2.35 billion) and is an aggressive acquirer of transport businesses. It has a stated intention of expanding in New Zealand after buying stevedoring and logistics assets from BHP here last year.

Little said further purchases of Tranz Rail shares depended on price.

"We're not totally ignoring the fact there is another bid on the table right now - be it a heavily conditioned one.

"We're not going to go in there with an open cheque book."

Patrick, a stevedoring and transport business run by former Bankers Trust Australia chief Chris Corrigan, has also flagged expansion plans, though not in New Zealand. It is a 50 per cent shareholder in Australian discount airline Virgin Blue.

The scenarios of the next step run the gamut from everyone pulling out, to competing bids to a quick sale of the track to the Government.

"The directors' responsibility is to maximise the return to shareholders and they will solicit as many options as possible," one analyst said.

A spokesman from Deputy Prime Minister Michael Cullen's office said there was no specific proposal on the table from Tranz Rail as of yesterday, although there have been ongoing discussions on the Government's Land Transport Strategy.

RailAmerica said it was the only one with a serious offer on the table.

"If they [those driving the share price] are real bidders, I would like to understand their track record in running and turning around railways as opposed to ours," said Marinus van Onselen of RailAmerica.

Brett Wilkinson of Direct Broking said although fund managers had higher valuations on the stock "the risk-reward ratio is starting to diminish in the stock at current levels".

Toll's Little said his company was already in New Zealand and he saw some synergies with its business.

"Our view is that the quality of the assets are quite good and we believe we can bring some management expertise to produce a better result at the end of the day."

Toll has a rail freight joint venture with Patrick Corp, Parramatta-based Pacific National, Australia's largest interstate rail operator.

Toll and Patrick put their rail businesses into Pacific National last year and spent A$1.05 billion on buying Government rail assets.

Little said Toll was typically more interested in the freight and Pacific National more interested in running trains. He said Toll was talking to Tranz Rail yesterday.

Toll was also interested in Tranz Rail's interisland ferry business which would benefit from the Brambles shipping business Toll bought last year.

"We also have an interest in the Tasmanian Rail equity that Tranz Rail hold," said Little. "So our interest is in the group, rather than cherry picking individual assets," he said.

Toll Holdings

* Toll Holdings is an integrated transport and logistics provider.

* Head office: Melbourne.

* Market value: A$2.1 billion ($2.35 billion).

* Core divisions: Toll Long Distance, a linehaul business; Toll Logistics; and Toll North.

* Entered rail business in 1993, just before its initial public offering, with the acquisition of the Perth-based Railor Group.

* In January last year the Australian Government approved the purchase by Toll and Patrick Corp of National Rail and Freight Corp. The two companies added their respective rail divisions to form Pacific National, the largest private rail operator in Australia and the second-largest rail operator overall behind Queensland Rail.