Deal cuts across Toll Holdings takeover bid
Australian company Toll Holdings Ltd’s takeover bid for the troubled Tranz Rail Holdings Ltd is up in the air after the Government signed a heads of agreement with Tranz Rail on Friday aimed at restructuring & developing the rail system.
The agreement includes a proposal for the Government to take 35% of Tranz Rail for $75.8 million, giving it 3 of 7 board seats. The proposal will be put to Tranz Rail shareholders on 11 July. Grant Samuel & Associates will provide an appraisal.
Toll Group NZ Ltd lodged its takeover bid for Tranz Rail 2 days earlier after building up a 10.1% stake at an average 76.37c/share. It’s proposing to pay 75c/share for the rest of the company, compared to the 67c/share the Government will buy its new shares at, and a sub-50c price level through April & early May.
Toll expected its offer to go to shareholders by the end of June.
Government focus on rail system
Although the Government seems to have stepped into the middle of a takeover, its intent is focused on the integrity of the rail system, whereas Toll is an operator.
The Government agreed in 2001 to buy the Auckland region’s rail corridors from Tranz Rail for $81 million so a regional passenger transport business could be operated sensibly. On top of that, regional & city funding totalling just over $200 million has been provided to upgrade the Britomart transport interchange and nearly $400 million has been set aside for regional network upgrades, including turning graffiti-covered, weed-infested stations into real railway stations. The costs of rolling stock & rail track upgrades come on top of those figures.
The new proposal would make Tranz Rail just an operator, paying annual access fees for a system returned to government ownership. As an operator, Tranz Rail could have a more secure & profitable future.
Under the agreement, the Government will buy back the rail track, associated land lease,
yards, terminals & control systems for $1 and other land, property & leases surplus to Tranz Rail requirements for about $50 million, subject to final valuations.
$44 million deposit on assets will be paid this month, annual clawback through access charge
The Government will pay Tranz Rail $44 million in mid-June as a deposit on rail network & assets, repayable with interest on 30 June 2004 if shareholders reject the proposal in July. If it’s approved, the restructured system would start operating on 30 September.
Tranz Rail would have exclusive access rights, subject to existing 3rd party access rights, until the end of 2070 under a “use it or lose it” requirement that would be triggered if tonnage carried on lines dropped below agreed levels (in general, 60% of current levels, lower on some industrial lines).
The track access charge would be set at levels that enable Tranz Rail to achieve a commercial return based on the weighted average cost of capital required to operate its rail freight, rail passenger & ferry businesses.
The track access charge would be payable in arrears, reviewable every 3 years and subject to adjustment for investments in innovation that generates value for Tranz Rail.
The access charge for the first 9 months to 30 June 2004 would be $41.2 million.
The Crown track network operating company would invest an incremental $100 million over 5 years on projects to upgrade track network operations & safety standards.
Walden says user-charges basis puts road & rail freight on equal footing
Tranz Rail chairman Wayne Walden said the proposal “would see road & rail freight carriers competing on a level playing field for the 1st time — with both contributing towards the cost of essential supporting infrastructure by user charges.”
Mr Walden said the deposit would safeguard Tranz Rail against short-term liquidity problems, which have already contributed to the company’s share price writedown.
“This transaction would enable Tranz Rail to break out of its current subsistence mode of operation, move into a new operating cost structure and undertake development investments that will see the company realise its full commercial potential as a highly competitive rail-based freight transporter.
“The proposal has real potential to enable rail to move much more freight, reduce heavy truck traffic on the roads, produce fuel saving efficiencies and deliver land transport in a way that involves less wear & tear on our environment. It promises benefits to the company and benefits to the country.”