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RailAmerica withdraws Tranz Rail bid

Friday 23rd May 2003

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RailAmerica has withdrawn its proposed tender offer for Tranz Rail.

The decision to proceed with an offer depended on a satisfactory due diligence investigation of Tranz Rail, the company, the world's largest operator of short line and regional freight railroads said today.

"As a result of our due diligence investigation, we have decided to withdraw our tender offer notice and not to commence any tender offer for Tranz Rail," said Gary Marino, chairman, president and chief executive of RailAmerica.

"We have determined that, under current circumstances, the proposed acquisition does not represent the opportunity for enhanced shareholder value that we had originally contemplated."

Marinus van Onselen, managing director of Freight Australia, RailAmerica's Australian business said this morning a confidentiality agreement signed by RailAmerica before it undertook due diligence on Tranz Rail prevented him from saying exactly why RailAmerica was walking away from the proposal.

"We made an offer based on 75c per share and that was based on the publicly available information," Mr van Onselen told National Radio.

"Once we signed a confidentiality agreement and our due diligence team, who are people we've assembled from around the world started to review the information, we came to a decision that basically our 75c per share offer could not be supported by the information that we had at hand. In that regard we're obliged to inform the market that we are not going to proceed with the takeover offer."

RailAmerica met Transport Minister Paul Swain in the Beehive earlier this week after last week announcing its $158 million takeover bid for the country's cash-troubled rail operator.

The offer was due to start on May 30 at 75c a share.

The bid was conditional on the company bagging 90% of Tranz Rail's shares.

It emerged early this week that Australian transport and logistics group Toll, which has been doing due diligence on Tranz Rail's trucking business TranzLink, purchased 6.1% of Tranz Rail's shares.

"We made an initial offer at 75c per share that we felt represented value for RailAmerica and its shareholders. We no longer have that view," van Onselen said.

The Florida-based RailAmerica made its on May 15, but the offer was seen by some commentators during the past week as too low.

Tranz Rail stock surged early this week when Toll disclosed its stake and said it may be interested in making its own offer on the company.

Tranz Rail shares closed up 6c at 93c yesterday after dropping as low as 30c in April. Tranz Rail's shares were just 52 cents before RailAmerica's bid last Thursday.

But van Onselen downplayed the effect of Toll Holding's buy-up on his company's proposal.

"The issue of market speculation and activity that's occurred since we involved ourselves in this has not changed the fundamentals of the company.

"This company is no different than it was a week ago and the basis of the share price movements have very little to do with the fundamentals of the company, that's an issue of market speculation.

"The issue of value is certainly always speculative because in the past week since we made the offer we were initially accused of trying to steal the company too cheaply and there are funds out there that are stating that we should have been paying $2 a share.

"We have a very strict disciplinary approach when we acquire companies and we've acquired 49 railroads in our 17 years of history. In order for us to acquire an organisation it must meet very strict criteria with regards to value for our shareholders," van Onselen said.

Art Hatfield, an analyst with US investment adviser Morgan Keagan, said it was likely RailAmerica found it could not lower Tranz Rail's cost structure.

Toll's position in Tranz Rail had pushed the stock price above RailAmerica's tender offer and "they could not see any need to continue the process", he said.

"Legitimately, their decision is based on the fact the profitability they had hoped to garner out of Tranz Rail just was not there.

"They will watch the company and see how things change and if they see anything that changes with regards to the company's cost structure or ability to improve profits of Tranz Rail they may take another look again," Hatfield told National Radio today.

"But I don't see that happening in the short term, I think that's a much longer term issue.

Tranz Rail had looked like a good long-term deal, and the price RailAmerica was willing to pay would "generate a good return for their shareholders".

"I think after this (due diligence) process and looking for two weeks they realised that they weren't going to get the returns that they thought and it was a good move on their part to back away.

RailAmerica is the world's largest short line and regional railway operator with 49 railways operating approximately 20,760km in the United States, Canada, Australia and Chile.
It operates an additional 6920km under track access arrangementsIn Australia and Argentina.

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