Tranz Rail move one of burst of takeover actions before deadline

Friday 29th June 2001

By Peter V O'Brien

The current burst or partial or full takeovers ahead of the new takeovers code which comes into force on Sunday and other corporate activity will again cut the availability of equity investment in New Zealand.

It will also shift control of more locally based assets into overseas companies, although there will also be some movements back into New Zealand hands.

Taking the second point first, the current situation with Tranz Rail seems to be developing into a case of assets going both ways.

Tranz Rail has sold some passenger services to Victoria-based West Coast Railways, but plans to keep a financial stake. From the proceeds, Tranz Rail is expected to cut its debt of $450 million by $20-30 million.

Tranz Rail's report for the nine months ended March 31 also referred to the Auckland Rail Corridor about which the government had indicated its intention to take over negotiations from the Auckland Regional Council.

Price appeared a sticking point. Subject to agreement on price, it seems the Auckland passenger train services will revert to full local control.

Discussions with the Wellington Regional Council regarding the potential sale of the Wellington Metro passenger rail business had been suspended until the Auckland situation was resolved. An eventual buyer for the Wellington operation could be either New Zealand or overseas interests, but the overall end result of Tranz Rail's substantial restructuring will be to remove substantial assets from the business.

A solidly New Zealand owned company in the form of electrical company PDL Holdings, is likely to disappear from the Stock Exchange after French company Schneider Electric and the Stewart family entered a conditional agreement over the sale and purchase of the Stewarts 59.6% shareholding.

Finalisation of the agreement would take Schneider's stake to 88% with the French company increasing that figure to 90%. Schneider presumably would then take the remaining shares through compulsory acquisition.

PDL's shares jumped 96c to $10.96 last week but came back to $10 on Monday on low turnover.

Electricity company TrustPower had increased action this week when US company Alliant and Infratil were in the market seeking another 20.9% of the group to add to the 44.1% they already own with Australian Gas Light and its partner Tauranga Energy Consumers' Trust also looking for control.

Since AGL and the trust own 43.1% of TrustPower and the public only 12.8%, there was a rather theoretical aspect to these offers unless one of the major holders was trying to flush out the other.

The eventual outcome of the current chess game is unknown but it could result in the number of shareholders in TrustPower falling below the threshold required to maintain the Stock Exchange listing unless there was a dispensation.

Another flow of control back to New Zealand came last week when Brierley Investments confirmed it sold it 66% holding in Tasman Agriculture to local investors, Dairy Holdings and Southern Capital.

Tasman Agriculture sold its New Zealand dairy farms and now has no debt, a swag of cash, part of which has been returned to shareholders and farm assets in Tasmania.

The company has said it intends to become an agricultural development finance and management group but no big transaction has occurred so far.

Then we come to the ongoing corporate soap opera of who is going to control Air New Zealand.

The airline is already effectively overseas-controlled, irrespective of the legal fiction of Brierley Investments 30% holding being under the control of a New Zealand-based trust.

A final decision of what happens to Air New Zealand lies with the government and whether it is prepared to change the rules on formal overseas ownership.

It is certain no New Zealand investor or consortium can produce the funds the airline will need to replace its fleet, irrespective of any willingness to fake up BIL's shareholding.

There are four options for the government - let Singapore Airlines increase its holding (changing the rules), let Qantas get in, put in public money (a taxpayer bailout) or maintain the current structure.

A hardnosed political decision will be made, probably for the wrong reasons, because government spokespeople keep prattling on about national icons and similar nonsense.

Private shareholders, who have seen 30% of their shares' value eroded this year, will be last on the list of considerations.

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