Way to go on rail bid

By PAM GRAHAM

RailAmerica's bid for Tranz Rail has some twists and turns to take judging by market trading and comments from both camps yesterday.

The shares closed 4c above RailAmerica's proposed 75c offer yesterday as investors bet either RailAmerica, or some one else, will pay up.

"This company is worth $3 a share in good hands, if you sell it at 75c all the value is going to the trade buyer," one analyst said. Still, the offer is above the 30c low last month when the reliance on asset sales to meet short-term funding commitments was revealed.

Tranz Rail chairman Wayne Walden said he met RailAmerica executives yesterday and told them the company would pursue asset sales even though RailAmerica's bid is conditional on their not proceeding.

"It's in the best interests of the company to proceed with those sales, particularly the sales that are reasonable close," he said, citing "good progress" on sales to Carter Holt Harvey and ports.

Owens Group said it was still interested in the trucking business for sale. Final bids are expected at the end of the first week in June.

RailAmerica said its own options included bringing in a private equity partner, forming strategic partnerships in some Tranz Rail businesses and selling assets.

Standard & Poor's put RailAmerica's credit rating on watch yesterday because of the bid. Its share price fell 11 per cent after its Tranz Rail bid was revealed.

The ultimate investment in Tranz Rail was likely to be less than the proposed purchase price, president Gary Marino said in a webcast to United States analysts and media yesterday morning.

Tranz Rail's asset sale plans could realise as much as US$100 million ($174.8 million), RailAmerica said.

Buying Tranz Rail would be "significantly accretive" to earnings before any synergies, cost savings or assets sales.

RailAmerica's pitch is essentially that it can run Tranz Rail better.

"Tranz Rail has experienced significant customer service and operation issues that we believe we can solve," Marino said. "We don't believe there is anything fundamentally wrong with the company that we can't fix.

"Our goals will be to improve Tranz Rail's business, enhance operation performance, increase safety and earn customers' confidence."

Even Tranz Rail's rival operators agree more goods should move on rail.

Don Braid of Mainfreight said that if RailAmerica ran a real railway and not a "virtual railway" more freight would move on rail. "We wish to move more freight by rail but are hampered through the lack of services."

Tranz Rail has to appoint advisers to make a recommendation to shareholders and its big institutional shareholders are waiting for that, noting that their own valuations of the stock are between $1.30 and $2.00.

Arthur Lim of Macquarie Equities said a big gap between valuation and offer price tended to need a negotiated outcome.