US fund could frustrate Toll

By PAM GRAHAM

A United States fund manager has built up a stake in the former Tranz Rail big enough to frustrate the ambitions of Australia's Toll Holdings.

New York-based Third Avenue Management yesterday disclosed that it owns 5.15 per cent of the rail operator, renamed Toll NZ, equal to about one-third of the 17 per cent of the company still in public hands.

The fund is believed to have been sitting just under 5 per cent and was tipped over the disclosure threshold when it bought more shares on Wednesday. It built up its holding during the Toll bid period last year.

Toll Holdings managing director Paul Little said his company had known for some time that Third Avenue was building a stake and was not "overly excited" about it.

Toll Holdings failed in its takeover bid for 100 per cent of Tranz Rail last October, but ended up with 83 per cent.

It has cleaned out the board and head office, reduced the website to the basics, got offside with the rail union and sold the track to the Government.

Toll's options for gaining full control are either to make a new bid to remaining shareholders, or after one year, start buying shares on-market to "creep" to the 90 per cent compulsory acquisition trigger at the rate of 5 per cent a year.

Brokers said Third Avenue's stake would make it harder for Toll to creep to 90 per cent.

It also made it harder for any bid to be successful and Third Avenue was well-placed to force third-party approval of any price in a compulsory acquisition situation.

Third Avenue is not a hedge fund that seeks to exploit takeover situations. It is a large fund manager, like an AMP, known as a value investor. Its international value fund also owns shares in Telecom and Rubicon.

Its offices were closed for the day by the time the Toll NZ stake was disclosed in New Zealand.

Little said if Third Avenue was a value investor it would not get much value out of Toll NZ because a lot of money had to be spent rebuild the company.

He said Toll was not ruling anything in or out with respect to moving to full control of Toll NZ, but it could probably still creep.

Fund managers Guardian Trust, ACC, New Zealand Investment Trust and thousands of small shareholders did not sell to the Australians.

They argued that Toll did not offer enough and that the continued listing of the company in New Zealand would force disclosure about an important business under Australian ownership.

The shareholders who held out have been rewarded, with the shares trading at $1.65 yesterday compared with the $1.10 in the Toll bid.

So have those shareholders who sold Tranz Rail shares and bought into Toll, at the time about A$7.50. Its shares closed yesterday at A$10.88.