Takeover panel probes Toll deal

By PAUL PANCKHURST

The Takeovers Panel believes Tranz Rail bidder Toll Holdings' sweetheart deal with the Government - under which the Crown would take over the tracks and put in $200 million - may breach the Takeovers Code.

The panel will meet privately next Monday in Wellington to decide whether to exercise wide-ranging powers that let it block takeovers.

Infratil, Tranz Rail, Toll - and a gaggle of lawyers - will be there.

The issue may be academic unless Toll significantly raises a 95c-a-share offer that brokers say is dead in the water.

However, the Tranz Rail shareholder that raised it, Infratil, says there is a matter of principle that goes to the heart of the takeovers regime.

The latest twist in the Tranz Rail saga is adding heat to the stand-off between Toll and the institutional investors unimpressed by the Australian firm's offer.

Of yesterday's development, Toll Holdings managing director Paul Little said: "I'm surprised. I think it's inappropriate, and I don't think it will succeed."

He said the behaviour of institutional investors such as Infratil was "quite unusual" - they wanted to sell their stakes but were trying to alienate the potential buyer.

Infratil executive Paul Ridley-Smith said the Government needed to shed the shackles of its agreement with Toll to deal with other potential bidders.

Under the deal announced on July 7, the Crown would take control of the tracks and spend $200 million upgrading the rail network if Toll secured full control of Tranz Rail by pushing past 90 per cent.

Toll would put $100 million into rolling stock.

The arrangement is exclusive, and so not on the table for potential rival bidders such as United States rail operator Genesee & Wyoming. Until the offer expires or lapses, the Crown cannot deal with a different party.

Ridley-Smith said this gave a significant advantage to Toll.

"This discourages competition for control - which is one of the key objectives of the Takeovers Code."

Of the exclusivity, he said: "The Government should be happy to be free from that restriction - especially given the market expectation that the Toll offer will fail - so that it can explore options with other interested parties."

Infratil alleges a breach of rule 38 of the code relating to "defensive tactics" that can result in "an offer being frustrated" or shareholders being "denied an opportunity to decide on the merits of an offer".

Part of the legal argument is that, in respect of the Toll-Crown agreement, Toll was effectively acting on behalf of Tranz Rail.

Little denied the agreement gave Toll an unfair advantage.

"Anyone was able to go and negotiate a similar thing with the Government ... No one else did.

"I can't see how it [the agreement] can just be opened up to anyone and I guess we will be making that point."

Tranz Rail's board meets tomorrow to decide whether to recommend the Toll offer to shareholders.