Tranz Rail shares slide as RailAmerica walks away from bid

11.45am

Tranz Rail shares plunged 25 per cent today following US rail company RailAmerica's surprise announcement it was withdrawing its proposed tender offer for the troubled company.

The stock fell 23 cents to 70 cents immediately after the announcement and brokers said they expected the rollercoaster ride for Tranz Rail investors to continue.

"As a result of our due diligence investigation, we have decided to withdraw our tender offer notice and not to commence any tender offer for Tranz Rail," Gary Marino, chairman, president and chief executive of RailAmerica, the world's largest operator of short line and regional freight railways, said.

Brokers said RailAmerica's pullout left Australian company Toll Holdings in the box seat to claim control of Tranz Rail if no other bidders emerged.

Toll this week grabbed a 6.1 per cent stake and indicated it may be interested in the whole company.

Tranz Rail shares traded as low as 30c last month as the company suffered liquidity problems and credit rating downgrades but rallied to 52c shortly before RailAmerica's bid was announced last Thursday.

Tranz Rail board chairman Wayne Walden said RailAmerica's withdrawal was disappointing "as it was a potential option for shareholders".

However, he said the offer was always highly conditional.

"The withdrawal is not surprising given the rise in Tranz Rail's share price. The bid did not look likely to succeed at the price indicated.

"Moving forward, Tranz Rail has always made it clear we were continuing with our programme of asset sales and that will roll on as well as refinancing plans to ensure the value is there for our current shareholders," Mr Walden said.

Marinus van Onselen, managing director of Freight Australia, RailAmerica's Australian business told National Radio this morning his company no longer held the view that its 75c per share offer for Tranz Rail represented value for RailAmerica and its shareholders.

Mr van Onselen said a confidentiality agreement signed by RailAmerica before it undertook due diligence on Tranz Rail prevented him from saying exactly why RailAmerica was walking away from the proposal.

"Once we signed a confidentiality agreement and our due diligence team...started to review the information, we came to a decision that basically our 75c per share offer could not be supported by the information that we had at hand. In that regard we're obliged to inform the market that we are not going to proceed with the takeover offer."

The Florida-based company announced its $158 million offer on May 15 and Mr van Onselen met Transport Minister Paul Swain earlier this week to discuss issues surrounding the takeover bid.

The offer was due to start on May 30 at 75c a share, but it became apparent it was too low as Tranz Rail shares climbed to 95 cents.

"RailAmerica pulling its bid removes the competition," David Cleal of MacQuarie Equities said.

"Toll is the only party which has put its hand up. Toll is definitely in the box seat."

He said it was a matter of whether "anyone else came out of the woodwork".

"There is no doubt there are decent assets there and it's a question of how those assets are managed. Toll are clearly interested in the whole company."

Tranz Rail was talking to other parties and hoping to extract a friendly bid but in the meantime it was business as usual.

"I think the Government has a role to play in this," Mr Cleal said.

"There is the issue of the level playing field. Tranz Rail has argued throughout that they are at a disadvantage to road users and there is an issue for the Government."

Mr Cleal said Tranz Rail management had to get on to do the things they had said they would, "to sell assets and reduce debt and run the company as best they can".

RailAmerica said it was still interested in setting up in New Zealand.

Mr van Onselen told a news conference in Auckland today there was "substantial growth opportunity" for rail in New Zealand and his company was still interested.

That may mean, however, the Government buying back the rail network for a private operator to run its own plant, he said.

He said the company met Transport Minister Paul Swain in Wellington earlier this week.

"If there is room in New Zealand at some point in the future for an organisation whose expertise is running freight trains in what is perceived to be marginal rail environments, we are very good at it," Mr van Onselen said.

He said due diligence of Tranz Rail books was the second time RailAmerica had looked at New Zealand.

"We are very persistent people...we are not closing the door and walking away."

- NZPA