Tranz Rail investors wait and see on bid

By PAM GRAHAM

Tranz Rail's biggest shareholders are neither rushing to accept nor spurn a hostile cash bid for the company from RailAmerica.

RailAmerica is offering to pay 75c cash a share and assume $236 million of Tranz Rail debt. The $394 million offer, including the assumption of debt, is conditional on 90 per cent acceptance, funding, no asset sales by Tranz Rail and Overseas Investment Commission approval.

Tranz Rail shares surged 25c yesterday to close at 77c.

RailAmerica said it expected to put more capital into the company but did not say how much. Tranz Rail will appoint an adviser and seek a valuation before making a recommendation.

If RailAmerica is successful the New Zealand stock market loses a company. The success of the bid is in the hands of large shareholders who have yet to meet RailAmerica executives.

Alliance Capital owns about 13 per cent, Infratil 7 per cent, Tower 5 per cent and AMP Henderson between 5 per cent and 6 per cent.

They have to weigh discounted cashflow valuations that say the shares are worth anything between $1.30 and $2 against the wild ride they have had down to 30c a share as investors.

They must decide whether the company will sort out its liquidity problem and also whether there will be a competing offer or any action from the Government.

It is not clear if the Government can intervene in the takeover. The OIC refers foreign bids to two ministers, John Tamihere and Michael Cullen, if there is a "sensitive land" issue and it had not yet made that evaluation, said Stephen Dawe from the commission.

The companies were privately owned and nothing to do with the Government, said Chris Mackenzie, an official in Cullen's office.

The Government would discuss land transport strategy with any new owners, he said. RailAmerica's Australian chief, Marinus van Onselen, said he would meet Cullen next Tuesday.

Andrew Bascand of Alliance Capital said the offer was below his valuation of $1.95, but it was a 44 per cent premium on Wednesday's closing price. The board's recommendation would assist with a decision.

Infratil's Paul Ridley-Smith said his company would wait and see.