Toll sticks with 95c bid for railways

By PAM GRAHAM

The heat is on. Grant Samuel has advised that Toll Holdings' offer for Tranz Rail is not fair and the shares are worth as much as $1.62.

But Toll is sticking to its 95c a share bid which must be sent out today, despite saying in an Australian interview broadcast over the weekend that there may be "one or two cents there". Meanwhile, the Tranz Rail board prepares to meet on Thursday to decide on its recommendation to shareholders.

Tranz Rail shares rose 2.9 per cent to $1.06 yesterday as investors placed their bets on a higher bid and as the big institutions held out for either a higher price or a ride as minority shareholders.

"Something needs to happen," said Toll managing director Paul Little. "We're the only offer. Let someone else put something else up if it's there. If it's not, let's stop trying to dissect something that may never happen."

Toll could not achieve its goals with a 50 per cent stake, said Little. He said Tranz Rail's board had to come to terms with risk issues which were not focused on enough in the independent report by Grant Samuel issued yesterday.

It said Tranz Rail shares were worth between $1.34 and $1.62 with the track buyback deal Toll had struck with the Government. They were worth between $1 and $1.11 under the first buyback deal between Tranz Rail and the Government. With no deals the value falls to between 81c and 99c.

"Not selling to Toll and Tranz Rail not concluding an agreement with the Crown is a highly unfavourable outcome," Grant Samuel said.

Even though details were lacking on both buyback deals, the Toll-Crown deal was preferable because the first $200 million of investment in the track was "free" to Tranz Rail and planned access fees did not constrain earnings.

Toll, already a 19.9 per cent shareholder in Tranz Rail, said if it did not get what it wanted it would not stay, but Grant Samuel said it was difficult to see Toll walking away.

Little said Grant Samuel had not taken enough account of risks in its valuations. Tranz Rail had behaved responsibly and Toll would probably talk to the board before Thursday.

"I think the board would be more than happy to accept a higher offer from Toll and recommend it, but we are not about to do that."



The situation was best described as fluid, said Nat Vallabh at AMP Henderson, which like other institutions is holding out for a higher price.

Simon Botherway of Brook Asset Management, a buyer in recent weeks, building a holding of just over 4 per cent, asked why anyone would sell at 95c when they could get $1.06 in the market.

He believed the Toll-Crown deal was probably available to another rail operator. Little disagreed. He said the deal was based on a range of commitments Toll made and reflected the company's ability to provide capital.

"We think there is a lot of uniqueness in that agreement and it would not be easy for someone else to stump up with the undertakings that Toll has given.

"Shareholders have to vote on Toll's bid or going back to some other model and whatever some other model may be has a lot of risks associated with it."

So why promise more in an Australian television interview?

"What I was saying ... was if someone came in 15c to 20c more than what Toll has bid we would need a retake. You could argue there might be one or two cents in the price. Our view is that's not going to be relevant at the end of the day because another bid is going to have to be significantly higher."

Toll's offer: 95c a share

Share price yesterday: $1.06

The first Grant Samuel report (July 7):68c-87c a share, or 97c-$1.03 with the first Government track buyback deal.

The second Grant Samuel report (yesterday):

* 81c-99c a share as a standalone company

* $1.00-$1.11 with the Tranz Rail Government buyback deal

* $1.34-$1.62 with the Toll/Government deal.