Government's Tranz Rail deal could struggle

By KEVIN TAYLOR political reporter

The Government's planned deal with Tranz Rail may be in jeopardy despite its being valued at $1.30 a share - 35c higher than the bid by Australian firm Toll Holdings.

The figure was announced by the Treasury yesterday after Toll nearly doubled its stake in the struggling rail operator to 19.9 per cent overnight on Thursday.

Toll bought from big institutional shareholders at 94c a share - which some analysts said showed the Government would struggle to get the 50 per cent approval it needed from shareholders for the deal.

The estimate of the Government deal's worth is vital to help shareholders decide whom to back.

Toll mailed its offer of 95c a share to shareholders this week, and shareholders will consider the Government deal at a special meeting on July 31.

The National Party says the Government is in a bidding war with Toll for control of Tranz Rail.

Associate transport spokesman John Key said yesterday's announcement had to be seen as a move to counter Toll's bid.

A spokeswoman for Finance Minister Michael Cullen said yesterday that he would not comment.

Under plans Dr Cullen unveiled this month, the Government would pump $76 million into Tranz Rail and would get a 35 per cent stake.

The Crown would also buy the rail network for $1 and other assets for $50 million and spend at least $100 million over the next five years to improve the track.

Asked yesterday about the timing of the release of the deal's value just after Toll had raised its stake, Treasury official John Wilson said it had always been the intention that the figure would be released after Tranz Rail's briefing to its shareholders.

At that briefing on Monday, Tranz Rail chief financial officer John Loughlin said many analysts were working on a value of the Crown deal at $1.15 to $1.20 a share. "We are haggling on a couple of issues in terms of the asset base particularly trying to drive it above that."

Mr Key said institutions were sceptical the $1.30 value would be obtained. That was shown by the fact that Tranz Rail's share price had hardly moved yesterday. "They have definitely discounted the Government's premium."

Tranz Rail shares closed yesterday up 1c at 92c.

Meanwhile, the Government said that should Toll's bid succeed, Dr Cullen had delegated handling of Overseas Investment Commission approval to Associate Finance Minister Trevor Mallard.