Toll, Tranz Rail battle shifts up a gear

By PAM GRAHAM

The battle for Tranz Rail heats up today. Tranz Rail will release details of the Government track-buyback plan as Toll Holdings' takeover offer starts arriving in shareholders' mailboxes.

Analysts will use the details and 2004 budget data released by Tranz Rail to value the Government's plan.

Government officials held talks with Toll yesterday.

Toll managing director Paul Little said the talks focused on what would happen if Toll's bid were successful.

Finance Minister Michael Cullen has publicly warned Toll not to assume a subsidy if it wins control of Tranz Rail.

Toll is promoting itself as a better manager of Tranz Rail. The Government is understood to be frustrated with aspects of Tranz Rail's management and strategy but is unable to promise change publicly.

It will have three directors on the board of the operating company, effectively what is left of Tranz Rail, if its plan wins shareholder approval at a meeting before August 8.

The Government plan is recommended by Tranz Rail's board.

Toll's offer is not subject to shareholder approval and closes on July 23. It is 95c a share cash conditional on Toll winning 50 per cent of the company, no asset sales, verification of interim accounts and no material changes in banking arrangements, among other things.

Such conditions increase the risk to shareholders that a bid will not go ahead.

Tranz Rail has 14 days to file a target statement.

Toll's Little said he had received no formal pledges of shares from fund managers before the bid was mailed this week and he expects shareholders to take their time.

Toll has been criticised in Australia for offering more for Tranz Rail on earnings a share than it has paid for other acquisitions.

Little believes Toll can copy the way it operates sea freight services between the Australian mainland and Tasmania between New Zealand and Australia.

"We are very excited about that. We think there is tremendous potential for cost savings and more efficient connection with Australia generally."

Lion Nathan used Toll in Australia and asked for the same service in New Zealand, he said. There were "one or two other" similar contracts in the pipeline.

Toll, a 10.1 per cent shareholder in Tranz Rail, is also waiting for today's detailed 2004 forecasts. The company has previously forecast earnings before interest and tax in 2004 of $48 million.

Little said a target had no obligation to give information to a hostile bidder. Targets could be friendly or unfriendly and the latter applied in this case.

"The company has really only given us what they are obliged to give us and there has been no additional information forthcoming."

He declined to say what information Toll had asked for.

The offer document on its way to shareholders says Toll is committed to providing new capital to shareholders. Little declined to put numbers on it.

"The key challenge inside that business is the re-equipping of the fleet and issues relating to the network."