Bizarre Stock Exchange ruling riles Tranz Rail holdouts

By Duncan Bridgeman

Friday 27th February 2004

A bizarre ruling from the Stock Exchange's Market Surveillance Panel has left Tranz Rail minority shareholders powerless ahead of next month's special meeting to approve the sale of the track to the Crown.

Australia's Toll Holdings will be able to vote its 84% share holding after receiving a waiver from listing rule 9.2.1, which forbids a related party transaction.

Without the waiver, Toll would have been disqualified from voting and the transaction would have been left to the remaining holdout shareholders to approve or reject.

The waiver was issued in July last year before it became clear Toll would not reach the 90% compulsory takeover trigger point.

The timing of the waiver has angered some minorities who question whether it would have been granted today given that Toll failed to compulsorily acquire Tranz Rail.

They say the NZX, in its July waiver, made assumptions that have not since been borne out and that must now call into question the validity of the waiver.

Their view of the value of the network and the deal with the Crown differs from Toll's because they paid more for their shares than the Australian company.

"The circumstances have certainly changed since July," said one Tranz Rail shareholder who asked not to be named. "I would have thought at least they would have been asked to reapply for a new waiver."

A Stock Exchange spokeswoman said Market Surveillance Panel executive Rachael Cross was away on leave until Monday and could not be reached for comment.

The panel granted the waiver from listing rule 9.2.1 in July on the grounds that Toll would receive no individual specific benefit from the deal over other shareholders. But that was before the holdout shareholders thwarted the takeover attempt, leaving Toll stranded with 84% of Tranz Rail.

"The question is: had the Stock Exchange had the benefit of knowing Toll was only going to get to 84%, would they have given the waiver?" another minority shareholder said. "It's all very well for Toll  they paid less for their shares than a lot of holdouts did."

Toll chief financial officer Neil Chatfield said the timing of the waiver was academic and there was no logical reason to renew it. "If we'd got to 90% it wouldn't have been necessary anyway."

The transaction, where the government will buy the track network for $1 and inject capital of $200 million, requires 51% shareholder approval.

Toll and the Crown are related parties after entering into a heads of agreement last July, which essentially passes ownership and control of the rail track infrastructure back to the Crown, with Tranz Rail retaining exclusive right of use.

Meanwhile, Tranz Rail this week said the Crown transaction was proceeding to plan. Chatfield said Toll was still working out the details of the meeting but expected it to take place early next month.

However, there seems to be some confusion over when the meeting will take place.

One Tranz Rail shareholder received a memorandum last Friday outlining the resolution, while at least one big institution wasn't notified until Wednesday this week.

Another shareholder said the meeting was scheduled for March 9.

While the issue of the waiver is causing some minority shareholder concern, others believe it is a moot point.

Guardian Trust joint domestic equity manager Ricky Ward said the waiver would not affect the outcome of the resolution.

"Even if Toll weren't able to vote I suspect the minorities would all vote in agreement to allow that transaction to proceed."

Tranz Rail this week wrote down the value of the country's rail track from its books to report a bottom line loss of $346 million.

At the same time, Toll reported a stronger than expected 51.3% increase in net profit to $A85.2 million.

Tranz Rail's contribution from October was an earnings before interest and tax of $A16.9 million, on revenues of $129 million.

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