Toll acts as Rail bid fails to fire

By PAM GRAHAM

Toll Holdings yesterday moved to a 10.1 per cent stake in Tranz Rail after RailAmerica withdrew its bid.

The RailAmerica pullout prompted credit agency Standard & Poor's to downgrade Tranz Rail to two notches above default.

RailAmerica's Australian chief, Marinus van Onselen, said the decision to withdraw was made on the basis of information received from Tranz Rail.

He also cited network ownership and access and conversations with stakeholders.

Toll said last night that it had spent $6.2 million on a further 4 per cent of Tranz Rail at an average price of 74c a share.

Spokesman Bernard McInerney said it would assess "day by day" whether to add to its stake.

Tranz Rail chief financial officer John Loughlin said there were no talks with Toll yesterday.

"They're putting a stake of 10 per cent in, which means no one else can go to 100 per cent," he said.

"Hopefully that will open the door for constructive dialogue.

"My understanding is they're very aggressive operators. It could be a very good thing depending on how it all works.

"I think a strong transport-orientated cornerstone could be a really good thing for Tranz Rail."

He hoped to announce next week a small asset sale to Port of Tauranga.

He said RailAmerica had done due diligence for only a day or so, and was given only a small amount of publicly available information.

"We had grave doubts about their ability to do the deal," Loughlin said.



Standard & Poor's downgraded Tranz Rail to CC, two notches above a D, or default rating.

Companies have to miss payments before they can be rated D.

S&P is now rating the company on publicly available information.

Even the new rating had a negative tag because of uncertainty about support from bankers.

Tranz Rail shares closed down 15c at 78c. Shares representing 6 per cent of the company changed hands yesterday.

RailAmerica's van Onselen denied Tranz Rail's plan to sell assets, Toll's stake or market trading above the offer price were factors in his company's decision.

For a private organisation, buying the track was a fundamental issue, he said, "and it is part of the value equation that we were struggling with".

Otherwise the executive employed standard blocking tactics at a media conference.

"I cannot comment on anything we have seen in the books."



Did you form a view about whether Tranz Rail was a going concern?

"Our view is that we will not proceed at 75c a share."

It would have cost RailAmerica $158 million to buy all Tranz Rail shares and it was offering to assume about $236 million of debt, taking the total cost to $394 million.

The company needed more capital on top of that, but RailAmerica has never said how much and it declined to put a figure on it yesterday.

The offer was due to start next Friday.





The company knew Tranz Rail well.

It saw the books in a full due diligence check in 2001, and was approached about the company as far back as 1991.

The decision to withdraw its bid was made during a conference call to the US from a downtown office in Auckland around midnight on Thursday.

The news was out in New York by 1.12am New Zealand time.

The company's shares rose 5 per cent to US$6.76, but remained below the US$7.80 they were at before the offer was announced.

Tranz Rail chairman Wayne Walden said the pullout was disappointing but not surprising.

van Onselen said he was encouraged by the opportunities for rail in New Zealand.

He used the Hume Highway in Australia to illustrate his position in the road versus rail debate.

Trucks make the 1000km trip between Melbourne and Sydney in 9 hours.

Trains on a "1960s" track take 11 hours. Ninety per cent of the freight goes by road.

"The mistake that was made in Australia, and it is not a mistake that has been made here yet, is that for 50 years Australian governments have favoured road," van Onselen said.

"The issue for stakeholders and the Government of New Zealand is to determine what type of a future is going to be implemented.

"If it is one that encourages the entry of companies like RailAmerica, we would certainly look at it.

"I believe in open access only if the access and the network is owned by the Government and paid for by the Government.

"It is not appropriate for a private company which has paid for a network to make it available to its competitors.

"However, if the Government were to own the network, open access is entirely appropriate".

Analysts have wondered why RailAmerica did not buy a blocking stake before announcing an intention to bid.

"Our approach was prudent. We believe we need to understand an organisation before we pay for assets," van Onselen said.