Double bind for rail bids

By ELLEN READ

Tranz Rail, under pressure from institutional shareholders, yesterday invited bids for its Wellington commuter rail service Tranz Metro and hired investment bank Cameron & Co to manage the sale.

But potential buyers face a complex and delicate process involving parallel negotiations with the Wellington Regional Council.

The council is seeking tenders for the operation of passenger rail services in the Wellington region - a contract that is accompanied by subsidies worth about $17 million a year.

Interested parties must enter both bid processes with no guarantee of linked success.

The sale announcement comes just days after Simon Botherway, head of Brook Asset Management - a 4.6 per cent shareholder - said Tranz Rail needed to speed up its exit from operations that were performing poorly.

Sources last week said one idea discussed at an analysts briefing from Tranz Rail was setting a three-month deadline for either selling Tranz Metro or putting the rolling stock up for international tender.

Yesterday, Tranz Rail chief financial officer Wayne Collins said the company was keen to work alongside the council to ensure the buyer would be the best operator for the rail network.

But the council warned potential Tranz Metro buyers not to rely on retaining the subsidy as it was awarded through a competitive process.

Council chairwoman Margaret Shields said Tranz Rail had told the council that the sales process would not reference the council subsidy as negotiations for this would need to be conducted independently.

"In other words, any purchasers of Tranz Metro must be aware that they will have to bid for the contract and subsidy along with any other operator."

Shields said the council was seeking tenders - a process that needed approval from Transfund - and hoped to consider these next month.

Collins said Tranz Rail was keen to work alongside Transfund and the council in regard to the service agreement.

"They need a new operator and we want to sell, so we have common ground to work from.

"It makes sense for us to co-ordinate our efforts and we are hoping for the best outcome for all."

But Shields said the key issue was that Tranz Rail's interests conflicted with those of the council and regional ratepayers.

"Through the sale process Tranz Rail will clearly be seeking to maximise the sale price - that is their duty to shareholders.

"That would be fine if it were not for the fact that any purchaser will then seek to pass on that price to ratepayers through the council's subsidy of rail services," said Shields.

"While Tranz Rail say they want to walk hand-in-hand with us, the council will be working to ensure it's not hand-in-pocket."

Collins said several organisations had expressed interest in the rolling stock, track access and operations business on offer.

He declined to identify them.

Stagecoach and French rail operators Transdev and RATP have previously said they were interested in Tranz Metro.

Tranz Rail said last month that it would begin the process to sell the capital's commuter train service following the failure of talks with the council.

The council - then in a joint bid with Stagecoach - had refused to offer an indicative bid before undertaking due diligence.

Tranz Rail insisted that it wanted to see a bid first.

The sales process announced yesterday will involve indicative bids followed by a shortlisting of contenders, who will carry out due diligence and make final bids.

The process is expected to take six months.

A price for the network is hard to pinpoint but suggestions range from $50 million to $100 million.

Last year, Tranz Rail sold its long-distance passenger services and is keen to rid itself of Tranz Metro so it can concentrate on its core business of moving freight.

Tranz Rail shares, which have traded between 92c and $4.30 in the past 12 months, closed unchanged at $1.07 yesterday.

The story so far

* Late 2000: Tranz Rail says it will sell Tranz Metro to concentrate on freight

* May 2002: Stagecoach cleared by the Commerce Commission to run a joint bid with the Wellington Regional Council for Tranz Metro

* December 2002: Sale negotiations collapse after Tranz Rail refuses to open its books until the council puts an indicative bid on the table. Tranz Rail says it will offer Tranz Metro to all-comers.

* March 2003: Cameron & Co appointed to handle the open sales process, which is expected to take six months