Between the lines: Where there's smoke, there's diesel burning

By DANIEL RIORDAN

It won't happen overnight, but it will happen - an extensive rationalisation of the country's road freight industry, with Tranz Rail the key player.

Speculation of merger talk among Tranz Rail, Mainfreight, Owens Group and an overseas player has been doing the rounds for months. The fire behind the smoke appears to be smouldering rather than crackling, but analysts are adamant a deal is inevitable.

About a year ago, Tranz Rail boss Michael Beard is understood to have had a chat with his Mainfreight counterpart, Bruce Plested, about a "friendly takeover" of the trucking firm, but Mr Plested said no.

A second bite at an amicable deal seems unlikely. Tranz Rail has gone on to pinch a bunch of Mainfreight drivers and management, and Mr Plested has reportedly told his staff any deal with Tranz Rail has no place in his 100-year plan for the company.

Mainfreight has criticised Tranz Rail publicly for running down its rail network in preference to road, and Mr Beard has accused road transport firms of lacking the commercial focus of rail and shipping.

The deal's driving force is Tranz Rail's determination to become a mode-neutral, non-rail logistics company, sending freight whatever way makes economic sense for the client. Road transport already accounts for about a third of its freight revenue, and it sees huge growth potential in that area.

The biggest shareholders of Owens and Mainfreight are not regarded as long-term investors, adding to the likelihood of deals for both companies. Mr Plested is the biggest investor in Mainfreight, with 29 per cent.

About half of Owens Group is owned by the family of the company's founder, the late Bob Owens, and associated parties.

Combined, Tranz Rail, Owens and Mainfreight would have less than 20 per cent of the fragmented road freight market, making it unlikely that competition regulators would have concerns with a deal.

It will probably require a big overseas party to knock heads together to make a deal work. Two names have been mentioned - one Australian and one American.

Tranz Rail still has its hands full with restructuring. Although a preliminary decision on the Auckland rail corridor was reached last week, taking away one of the company's more pressing issues, it is in the middle of asset sales, and its two biggest shareholders, Fay Richwhite and Wisconsin Central, have been hawking their combined 38 per cent stake for almost a year.

If only for that reason, gathering the parties around the campfire may take a while.