Big shareholders want Tranz Rail talks

By PAM GRAHAM

An attempt is under way to broker a meeting between the Government and fund managers owning 25 per cent of Tranz Rail.

A letter to the Treasury from one institutional shareholder, copied to others, seeks a meeting between the Government and the company's biggest shareholders on Thursday or Friday to discuss scenarios if Toll Holdings does not succeed in buying all of Tranz Rail.

Toll last week cut a $250 million track-buyback deal with the Government if its new 95c-a-share cash offer for all of Tranz Rail succeeds.

Institutional shareholders are angry that Toll gets all of the benefit of a deal they say is superior to the track-buyback plan the Government brokered with Tranz Rail.

"We would prefer to remain Tranz Rail shareholders and see the company succeeding as a listed New Zealand company," the letter says.

"Our view is there is substantial latent value in Tranz Rail that could be released over time if the company were able to benefit from the same deal the Government has struck with Toll."

In the Toll deal, the Government buys the track and simply recovers agreed levels of costs, the Government invests $200 million in the track over five years and Toll invests $100 million in rolling stock.

In the Tranz Rail deal there was a complicated formula for funding a new track-owning company that implied a $100 million subsidy over five years because the track company's costs would exceed funding from an access fee.

The Government invested $100 million in improving the track and $76 million in new capital in Tranz Rail, becoming a big shareholder in the company.

In both deals the Government paid $1 for the track and $50 million for associated assets.

Toll, which owns just under 20 per cent of Tranz Rail, made its second bid conditional on gaining 90 per cent of Tranz Rail's shares. Its first bid was conditional on 50 per cent acceptance.

Achieving total control of Tranz Rail gives Toll the opportunity to cut head office costs, estimated by Grant Samuel at $36 million in the year to next June 30, and the costs of a local listing. But the funds would prefer to ride the stock price higher with Toll as a 50 per cent owner.

In the letter, the fund says Tranz Rail had refused to acknowledge the precarious financial position it was in and the failure of its strategy. It needed to sell the track to the Government but the company had chosen an adversarial approach to negotiations.



Alliance Capital Management, Tower Asset Management, Brook Asset Management and Infrastructure and Utilities New Zealand collectively own 25 per cent of the company.

They have been talking to one another but do not have a co-ordinated plan to act together.