Toll boosts Tranz Rail stake to 19.99 per cent

9.30am

UPDATE - Australia's Toll Holdings has increased its stake in its takeover target Tranz Rail to 19.99 per cent.

Toll, which has launched a 95c per share takeover offer, formerly held a 10.1 per cent stake.

The company said in a substantial shareholder notice to the New Zealand Exchange today that it bought the shares on-market.

Tranz Rail shares were up 1c at 92c this morning, below Toll's offer price.

Toll's move makes it more difficult for the Government to proceed with its own offer of 67c per share, in new shares, for a 35 per cent stake in Tranz Rail.

The Government has also agreed to buy the national rail network for only $1, acquire the associated assets for $50 million, and invest $100 million on network maintenance.

Toll needs to gain a further 37.5 per cent of the shares it does not already own to be able to block the Government's bailout.

However, under takeovers legislation, Toll must offer all shareholders the same price for their stakes if it wants to boost its holding above 20 per cent.

The organising broker was Citibank.

ABN Amro Craigs equities adviser Nigel Scott said a reverse tender from some institutional shareholders in Tranz Rail was rumoured in the market a week ago.

"They (institutions) have a bob each way - they've taken some stock out to get Toll to a level, and it may give an indication to the retail public out there that they may be looking to accept 95c per share.

"Toll's obviously kept themselves on the front foot, pretty aggressive -- they're not stopping here.

"That's one thing that (previous bidders) RailAmerica didn't have -- a shareholding already in the marketplace before they started their bid. That's helped (Toll)'s bid enormously," Mr Scott said.

UBS Warburg's head of research Richard Leggat said the raid would mean the Government would struggle to get 50 per cent support for its deal at shareholder meeting.

Tranz Rail still has not decided what date the meeting will be, although it must be held before August 8.

"The fact that you have New Zealand institutions prepared to sell to Toll at 94 cents would suggest to me that at this stage they don't believe the Government's offer is going to be better than Toll's," Mr Leggat said.

"If they thought the Government's offer was a lot better than Toll's then they certainly wouldn't be selling to Toll.

"It suggests that institutions that sold to Toll are reasonably keen to see Toll get to at least 50 per cent."

Tranz Rail said on Wednesday that the Government's $126 million equated to at least $1.15 to $1.20 per Tranz Rail share.

A spokeswoman for Finance Minister Michael Cullen said he had no comment on Toll's move.

Tranz Rail had no comment today on Toll increasing its stake.

Tranz Rail chief executive Michael Beard admitted on Wednesday that the company was haggling to extract more from the Government.

Tranz Rail's board has to make a recommendation on Toll's rival 95 cents per share takeover bid by July 7. Ten days later it has to recommend on the Government deal.

Toll's offer closes on July 23.

- NZPA