Toll buys 6.1pc Tranz Rail stake

By PAM GRAHAM

Melbourne-based Toll Holdings last night emerged as a 6.1 per cent shareholder in Tranz Rail after active buying from broker Citigroup Global Markets NZ drove the rail company's shares as high as 87c yesterday.

Toll managing director Paul Little said it acquired the stake on market "so that we can participate in the anticipated sale process".

Tranz Rail shares ended the day up 7c at 86c.

Little said in a statement to the Australian Stock Exchange that Toll had been analysing publicly available information on Tranz Rail for months as a possible strategic fit.

"This involvement with Tranz Rail is seen as an opportunity to further complement Toll's existing operations in New Zealand and in line with Toll's strategic growth ambitions within the region," said the statement.

Toll said it had bought 12,858,972 Tranz Rail shares.

Toll's move to acquire a stake in the company comes a month after it indicated it was interested in Tranz Link, Tranz Rail's road operations.

RailAmerica, which is using UBS Warburg and Morgan Stanley as advisers, had not bought any shares in Tranz Rail yet, spokesman Andrew Stokes said.



There was speculation that either international hedge funds were buying up, betting on a higher bid, or that another bidder was building up a stake.



AMP Henderson's Nat Vallabh said he had not been approached by anyone seeking to buy his fund out and had not yet met RailAmerica executives.

Brook Asset Management's Simon Botherway said his company was happy with its holding and had not met RailAmerica.

RailAmerica executives, though, had met some of Tranz Rail's customers and would meet more this week, said Cedric Allan of the Rail Freight Action Group, which represents 80 per cent of Tranz Rail's customers.

The group, which includes Carter Holt Harvey, Fonterra and Solid Energy, met yesterday and is continuing to urge the Government to buy back the railtrack.

"The opportunity is still there for the Government to reverse the mistake made in 1993 and create a level playing field where the state owns, improves and maintains both the road and rail networks and charges access fees to commercial users," the group said.

"Any outcome that works for major rail users will work for rail full stop."

Marinus van Onselen, the managing director of Freight Australia, RailAmerica's Australian business, will meet Transport Minister Paul Swain today.

He said last week he wanted to listen to what the Government had to say.

RailAmerica has said it will pay 75c cash for Tranz Rail shares, for a total cost of $158 million, and assume about $236 million of the company's debt.

The offer, a 44 per cent premium to where the shares were trading before the offer, is conditional on 90 per cent acceptances, no asset sales by Tranz Rail, Overseas Investment Commission approval and funding.

It is scheduled to open between May 30 and June 14 and last 30 days unless extended.

Tranz Rail must obtain an independent valuation before deciding on a recommendation to shareholders. It said last week it would continue to pursue asset sales.

RailAmerica's bid contrasts with Burns Philp's successful hostile offer for Goodman Fielder in Australia when it built up a blocking stake before bidding to all shareholders.

Around the time Tranz Rail's share price fell to 30c last month, Commonwealth Bank's Colonial First State, a 12 per cent shareholder a year ago, was selling in heavily.

It was an opportunity to build up a stake but brokers said the shares were mostly bought by small so-called "mum and dad" shareholders.

The Government sold Tranz Rail in 1993 without a kiwi, or golden share, used in some privatisations to preserve public interests under private ownership.

Under a lease covering the rail corridor under the tracks the lessor, the Government and New Zealand Railways Corporation, can allow other rail operators to use a line if Tranz Rail does not meet minimum service requirements.

For freight it is 10 per cent of 1990-1991 tonnage. The rail operator can also voluntarily give up lines.

Tranz Rail and the Government had been discussing a range of options for the future, which included selling the track back.



Standard & Poor's placed Tranz Rail's CCC credit rating on watch yesterday and said a positive impact was likely if RailAmerica took over Tranz Rail. It put RailAmerica's BB minus rating on negative watch last week because of the bid.