Toll mulls higher Tranz Rail offer after knockback

By Nick Stride & Duncan Bridgeman

Friday 13th June 2003

Toll Holdings said yesterday it was mulling a fresh Tranz Rail bid at a higher price after being gazumped by the government.

Managing director Paul Little said Toll had three options to walk away, to enhance or restructure its 75c-a-share offer, or to leave it as it stood.

"I would think that the first and last are less preferred at this stage. The one that we're working on now is to see if we can restructure the offer."

Toll and Finance Minister Michael Cullen have been trading irritable press releases since last Friday when the government revealed an agreement with Tranz Rail to buy the track network and inject capital for a 35% shareholding.

Each side claims the other has not been interested in pursuing a joint approach to recapitalising the rail operator, which is on the brink of insolvency.

Dr Cullen has said the government wants to negotiate from a position of strength as the track owner.

Mr Little reiterated yesterday that Toll had no objection to the government owning the track and was "very surprised and disappointed at the government's lack of interest in talking to us."

Dr Cullen said the government was committed to its course of action.

It would be more appropriate to defer discussions until after July 11, when Tranz Rail's shareholders vote on the government's proposals, although there might be some point in Toll talking to officials before then.

Mr Little disagreed, saying the key issue was establishing a regime for track access. "We've got an open mind on that."

Toll also had an open mind on "propping up Tranz Rail's short-term debt problem," which the government cited last week as the reason for stepping in while Toll's offer was on the table.

The outbreak of leapfrogging has left Tranz Rail shareholders struggling to assess their best course of action. Under the government's proposal the operator will receive a taxpayer subsidy worth about $20 million a year but holders will be diluted heavily by the government's share issue.

Alliance Capital Management equities portfolio manager Andrew Bascand said more information on the government's proposal was needed before shareholders could take any sort of view on Tranz Rail, regardless of Toll's actions.

That included a report highlighting the likely valuation methodology of the assets by consultancy firm Grant Samuel this month.

"At the moment the government's proposal has two firm parts to it and one very woolly part. The parameters around the general framework are very opaque."

Alliance, on behalf of Axa Asia-Pacific, has been selling down a large Tranz Rail position and yesterday filed a notice it now owned 11.06%.

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