Tranz Rail shares fall but hold above Toll's bid price

UPDATE - Tranz Rail shares fell 5 cents or 5.7 per cent to 83 cents today when the market reopened after Australian freight company Toll Holdings last night put in a lowball bid for the company at 75 cents.

Toll yesterday announced a full takeover bid for Tranz Rail, 13c below yesterday's closing price of 88c and at the same price as RailAmerica's bid that was pulled a week ago.

Fund managers who own parcels of Tranz Rail yesterday said 75c a share was too low when RailAmerica offered it, and it was still too low.

They value the stock at between $1.30 and $2.

Toll, which last week hiked its stake from 6 per cent to 10.1 per cent, has improved the chances of success of its bid by only making it conditional on winning 50 per cent support.

Shareholders' Association chairman Bruce Sheppard told National Radio Toll looked like it would be a very good major shareholder of Tranz Rail.

He said it was up to shareholders, institutions and directors to decide whether they were better off with Toll, which would give it "a better long-term future," or to reject it and face further uncertainty.

Mr Sheppard said it was hard to know what direction Toll would take based on what they did in Australia.

"But as far as them driving more freight off the rail on to the road, I suspect that will be a political no no.

"The issue is how will it be financed and made competitive?"

New Zealand Herald financial columnist Brian Gaynor said the tracks were a "big issue".

He said the tracks, valued in the books at $240 million, were more of a liability than an asset because of maintenance costs but Toll was likely to want to own them.

"The last thing it wants to do is buy a rail company and all of a sudden see a whole pile of people competing on top of the tracks that you thought you were actually buying." RailAmerica withdrew its bid after Toll bought into Tranz Rail.

Toll said it would lodge a takeover notice next week and that its offer would be conditional upon, among other things, regulatory consents, Tranz Rail not disposing of any of its businesses or assets, entering any joint venture or altering its existing debt or capital structure.

The stock plunged as low as 30c on April 16 when a fund was selling and details emerged of how the company needed to sell assets this quarter to meet lease payments and repayments of debt required by bankers.

The company can buy up to 20 per cent of Tranz Rail before dispatching its takeover offer. Offers are sent 14 days after intentions to bid are made and remain open for 30 days.

Toll managing director Paul Little said Toll wanted to keep most of Tranz Rail's assets but would feel uncomfortable with the Wellington passenger services, Tranz Metro.

Asked about the rail tracks, Mr Little told Radio New Zealand that Toll's preference was to continue to control the network.

"At this point in time, the operations inside Tranz Rail we see as a very workable one in relation to the network."

He said the exclusive right to use the tracks was a very important aspect of Toll's interest in the company.

"Clearly, there will be more discussions with the Government and the company, I might add, but we're comfortable with the model as it sits at the moment."

Mr Little said Toll had been looking at Tranz Rail for some time through publicly available information. The company was "comfortable enough" to pursue its bid without conducting due diligence at the moment.

He said Toll would not necessarily stop bidding if it got to 50 per cent. The 50 per cent condition, against RailAmerica's 90 per cent condition, would improve the bid's chances of success, Mr Little said.

Toll understood Tranz Rail was well advanced in the sale of its trucking business, TranzLink, for which Toll was a prime bidder. But Toll wants Tranz Rail to retain all assets including TranzLink, he said.

"We certainly wouldn't like to have any of these assets sold in the interim because they would go to the strategic significance of what we are doing or in some cases, like the Wellington rail network, it would go to the bottom line value."

Tranz Rail selling assets to reduce debt would not greatly alter the situation.

Toll would be lodging official documents next week and Mr Little said because the bid had so few conditions and was very transparent, Toll was hopeful of quick resolution.

Toll is the largest private operator of rail in Australia. It bought the New South Wales and National Rail's operations some years ago, which is a billion dollar business run profitably under the brand, Pacific Rail. Toll also runs coastal shipping and trucking operations and a warehouse and distribution business. It already owns some port operations and warehouse operations in New Zealand.

Mr Gaynor said it was inevitable the Government would get involved if the passenger services were dumped.

"They will want to sell or close down existing passenger services. The question is what kind of price are they going to be after if they sell?"

He said those who wanted to buy the passenger services would go to Government for help.

"Passenger services in New Zealand don't really make money."

Mr Sheppard told National Radio public transport was a hot issue.

"They've always got the possibility of just shutting it. What would happen if they simply said to the government it's not economic, it's not covering variable costs, we're not interested, the trains aren't running any more -- I suspect the Government might find a solution."

A spokeswoman for Transport Minister Paul Swain said the bid was between two private companies and he would not comment on it.

However, she confirmed he had an informal meeting with Toll executive director Mark Rowsthorn (crct) in Melbourne last week.

"They didn't discuss any bid at all. It was a wider discussion of New Zealand's transport strategy and the role of rail in that," the spokeswoman said.

- NZPA