Fund flouts Toll offer, buys rail shares

By PAM GRAHAM

Guardian Trust Funds Management yesterday revealed a 3 per cent shareholding in Tranz Rail which it is trying to increase in defiance of the takeover offer from Toll Holdings.

The fund manager - one of the shareholders holding 16.5 per cent of Tranz Rail that have not accepted Toll's $1.10 a share offer - said it was buying the rail company's shares for more than $1.10.

Tranz Rail shares traded as high as $1.18 yesterday on thin volume.

"Our first responsibility is to our investors and we have always held the view that the offer of $1.10 is far too low," Rickey Ward, joint domestic equity manager for the fund, said.

Acceptance at $1.10 would simply transfer wealth from his fund's investors to Toll.

Toll Holdings managing director Paul Little declined to comment on Guardian Trust's statement. He said his company was still confident it would get to 90 per cent and was getting on with the job of running Tranz Rail.

Toll has extended its offer until November 7 after declaring it unconditional. It still wants to get to 90 per cent so it can compulsorily acquire the remaining shares and delist Tranz Rail.

By wholly owning the business it can integrate Tranz Rail's different divisions into its own businesses.

"We are not convinced that Toll will be restricted from making the changes they deem necessary by remaining a listed party on the New Zealand exchange," Ward said.

The Accident Compensation Corporation has said it is still a shareholder and it had a 0.7 per cent stake on September 11, according to Tranz Rail's annual report.

UK-listed New Zealand Investment Trust is also believed to have held on to its 0.7 per cent stake.

Ward said his fund was aware of the ACC holding but was not working with ACC. Guardian Trust would try to buy shares as passively managed funds sold.

These funds follow an index and do not make active decisions about investments.

Toll's problem

* Toll Holdings has 83.5 per cent of Tranz Rail. Once it reaches 90 per cent, the remaining shareholders must sell.

* Toll has extended its offer to November 7 to try to reach 90 per cent.

* Guardian Trust is buying Tranz Rail shares. It thinks Toll's offer is too low and the shares will be worth more with Toll running the company.

* Guardian's move could stop Toll getting 90 per cent. If it does, Toll can't get the full benefits of owning Tranz Rail.

* Toll must then make another takeover offer or wait a year and buy more shares on market.