Why the bankers sold out

Sir Michael Fay and David Richwhite's Midavia Rail decided in May 2000 to sell out of Tranz Rail because its UK rail investment had better growth prospects, the company says.

That was 20 months before the company exited in the share sell-off that the Securities Commission believes was triggered by the improper use of inside information.

The explanation is in a "statement of issues" that was among the documents filed in the High Court yesterday by David Richwhite and Midavia Rail - the company formerly called Pacific Rail.

The timeline of key events in this account is in striking contrast to the commission's depiction.

The defendants say Pacific Rail decided to sell in May 2000 because parent company Fay Richwhite Holdings believed it was "overweight" in rail investments.

It thought that its United Kingdom rail investment had better growth prospects than Tranz Rail.

Investment bank Deutsche was instructed in June 2000 to sell the stake. It looked for buyers in 2000 and 2001.

By 2001, the sales process involved seeking a buyer for 100 per cent of the company but by year's end the Tranz Rail board had not seen a bid that was acceptable.

From there, Pacific Rail shifted to trying to sell its shares through a private placement by another investment bank, UBS Warburg.

That was the deal that was done - now, so contentiously - on February 8, 2002, the day after the release of the company's second quarter result.

The defendants say the later decline in Tranz Rail's share price was for reasons not known at the time of the sale.

"David Richwhite continued to be optimistic about Tranz Rail's prospects following the sale" so a company controlled by his family interests held on to a 3 per cent stake in the company.

Reasons for the share fall included, they say, Tranz Rail's Rail services group declining in performance, and it becoming clear that sales of key assets such as Tranz Metro Wellington would be delayed.