Toll raises Tranz Rail offer by 20c

By PAM GRAHAM

Australia's Toll Holdings yesterday chose confrontation rather than withdrawal as it raised its takeover bid for Tranz Rail, setting itself on a collision course with the Government.

Toll's new bid of 95c a share, 20c higher than its original offer, is 6c above Tranz Rail's closing share price yesterday.

It will be mailed to shareholders within 14 days, giving them a choice between 95c from Toll and a Government bailout plan recommended by the board.

Despite its overt challenge to the Government's plans for New Zealand's rail business, Toll continues to stress its willingness to work for a mutual solution.

"We are trying very hard to get an appointment with the Government," said the company's managing director, Paul Little.

"We remain optimistic now that no one is covered by confidentialities and we can talk more frankly about what we are trying to do," he said.

Little arrives in New Zealand on Monday but is yet to secure a meeting with Finance Minister Michael Cullen.

Cullen's office said he had no comment on Toll's increased bid.

Transport Minister Paul Swain said this week that the Government would not change its plan if Toll increased its offer and that the future of Tranz Rail rested with shareholders.

In a deal recommended by the Tranz Rail board, the Government is proposing to buy the track and associated assets for $50 million and buy $76 million of new shares.

Tranz Rail would lose exclusive access to the track if freight fell below 60 per cent of current levels or if it missed yet-to-be-set key performance indicators.

The fee it will pay implies a $20 million-a-year subsidy to rail and the Government has pledged $100 million over five years to improve the track.

A weighted cost of capital measure used in a formula to calculate the access fee is not yet agreed.

Analysts said Toll's offer was too low, and institutional shareholders are continuing to wait and see.

"Practically every valuation approach would value the company at over $1," said Ian Graham from Forsyth Barr. "I think the opportunistic moment has passed now."

Many funds that bought in above $3 when cornerstone shareholders sold last year are still big losers on the investment, but they acknowledge that until the Government stepped in the company was struggling to find $19 million for a rolling stock lease payment on June 19.

A downpayment from the Government this month and a restructuring of a lease on the Aratere ferry, releasing $30 million held as security, has eased the threat of insolvency.

Wayne Stechman at Tower Asset Management said he needed to see all the conditions in Toll's revised notice of takeover and the independent report that would be provided.

Toll has removed conditions requiring confirmation of accounts and forecasts.

The bid remains conditional on Tranz Rail's TranzLink trucking unit not being sold. Final offers for the business are due on Monday and Toll said it would probably put in a bid to cover its bases.

Toll, already a 10.1 per cent shareholder in Tranz Rail, continued to talk up its credentials as an operator.

"We believe the Toll deal is in the best interests of all stakeholders, including New Zealand freight customers and the wider export economy," Little said.

He will bring that argument to New Zealand on Monday.

So far the company's chief operating officer, Mark Rowsthorn, and chief financial officer, Neil Chatfield, have been in New Zealand pursuing the deal.