Toll facing a rail buy or bye bye

By PAM GRAHAM

Today is D-day for Toll Holdings.

The Australian company will decide by dusk whether to carry out a threat to walk away from its New Zealand expansion if it cannot win total control of Tranz Rail.

Yesterday it had acceptances for 73.5 per cent of the rail, road and ferry operator's shares, short of the desired 90 per cent level.

The $1.10-a-share cash offer, which is recommended by Tranz Rail directors, closes at 6pm today.

Toll has said it is confident of getting to 90 per cent, the level that triggers compulsory acquisition of remaining shares and a sharemarket delisting, but it has also said it will walk away if it ends up too short of the target.

Analysts and fund managers are sceptical that the threat will be carried out and they expect Toll to waive the condition if it ends up close to 90 per cent.

Toll could still gain total control if it is just under that level because rule 24 of the Takeovers Code says unconditional full takeover offers can be extended for 60 days.

Also, acceptances have not been received for an unknown number of shares held by passively managed funds. Their managers accept takeover offers when a company no longer meets criteria for inclusion in an index - and that can take time.

AMP Henderson alone has about 2 per cent of Tranz Rail shares in this category that it has not sent in acceptances for.

There was speculation yesterday that one small institutional shareholder will hold out but its identity was unknown.

Hedge funds and arbitrage traders who try to profit from takeover situations generally wait until the last minute to accept. If they see potential for an alternate bid or higher offer, they stay in.

Toll managing director Paul Little was confident the bid was gaining momentum in its last days.

"But I still want to give the warning that if we don't get 90 per cent then we will seriously look at our options whether or not to proceed. It is that important to us."

He had to make that decision tomorrow.

Little said Toll did not want to end up as a majority shareholder in a listed company because the "costs and distractions associated with that simply can't be justified".

"We are planning to spend significant sums of money. We are quite happy to do that, but other shareholders may not be.

"When you have to get approval of smaller shareholders you get a ridiculous situation of the tail wagging the dog."

He said if Tranz Rail continued as a separately listed company its balance sheet would be hopelessly inadequate.

Toll made no apologies for the fact that the benefits of any success it achieved with Tranz Rail would be enjoyed by its own shareholders, but it was listing locally to make Toll shares accessible to New Zealanders.

"We will be risking our money and working hard for our shareholders," said Little. "But I believe we will also make the New Zealand economy more competitive."