But Tranz Rail has never been far from the news and has had a particularly action packed year since we last devoted close attention to it. It started 2003 in absolute financial crisis, having been basically picked clean by the asset strippers who had owned it since the Bolger National government sold it in 1993. By June it had issued its fifth profit downgrade in 12 months. Other foreign predators came sniffing around. In May 2003, RailAmerica made a bargain basement takeover offer of 75 cents per share. That offer lasted all of one week before the US company withdrew its bid, following due diligence on Tranz Rail.

But union euphoria didn’t last long. In July 2003 the Government announced that it was dropping its bid to buy a 35% stake in Tranz Rail for $76 million. Instead it had done a deal with Australian TNC, Toll Holdings, allowing the latter’s 95 cents per share takeover bid to be put to Tranz Rail shareholders (initially Toll had offered 75c). But the Government stuck to its plan to buy back the track for $1, plus pay $50 million for property assets including leases and Wellington Railway Station, and further agreed to spend $200 million over the next five years upgrading the track via a new State-owned company. It’s called TrackCo and it takes over the national track network from July 2004 (Tranz Rail has to pay TrackCo’s costs until then). It will be based at Wellington Railway Station and employ up to 90 Tranz Rail staff. TrackCo is charged with maintaining the rail tracks, accident management, and network control. It will take over all current third party track maintenance contracts (to ensure that TrackCo has a home, the Government had to buy Wellington Railway Station, for $8m plus GST, in October 2003. Victoria University became the major tenant of the upper floors. In addition, the Government will pay more than $16.5m for maintenance and upgrades on the historic Wellington landmark).

So the Government backed away from an effective renationalisation (or part-renationalisation) of the whole railways, settling for a complete renationalisation of the track, which had always been its primary goal. Labour’s front bench is stacked with veterans of the 1984-90 Rogernomics government who cut their political teeth reciting "The Government has no business running railways" – or anything else, in the case of those who founded ACT.

Effectively the Government, which had offered 67c per share, was outflanked and outsmarted by Toll, which upped its bid from 75c to 95c and then doubled its stake in Tranz Rail, to 19.9%, in a lightning share raid in July. Toll had started with a 6.1% stake, in May, increased quickly to 10.1%. A month before the joint deal the Government and Toll were at loggerheads, with the Minister of Finance, Dr Cullen, refusing to meet to meet Toll’s managing director, Paul Little, and accusing Toll of bad faith and of being on a collision course with the Government. For his part, Little accused the Government of irrationality. But while the Government mucked around, Toll acted and effectively seized control of Tranz Rail, leaving the Government no alternative but to grin and bear it, and announce a joint Heads of Agreement with Toll. Cullen said that there was now no need for the Government to own a stake in Tranz Rail. "He said the deal fulfilled the three main objectives of the Government: to upgrade the rail network, find a competent operator, and to own the rail track" (Press, 8/7/03; "U-turn by Govt on rail deal"; Colin Espiner).

So, instead of a renationalisation of railways, it became a version of public–private partnership (or PPP, which is one of the fashionable means of semi-privatisation employed around the world). The State-owned TrackCo will give Toll a five-year holiday on payments and then charge a full-cost track access fee, replacing the current $20 million per year subsidy that the Government pays. As already stated, the Government will pay $200 million over five years to upgrade the track via TrackCo. Toll gets sole use of the track network until 2070 (and a director on the TrackCo board), subject to it investing $100 million up front in locomotives and wagons. "A performance regime will mean incentives for Toll if it shifts freight from road to rail, and penalties if freight carriage falls below 70% of current levels" (Press, ibid). The level below which penalties applied was 60% in the Government’s previous agreement with Tranz Rail. If Tranz Rail increases freight volumes by 10% or more on certain lines the Government will grant it an access charge holiday. The whole deal was contingent on 90% of shareholders approving it; if not, then the Government’s original offer would go back on the table.

There is no doubt about who got the better part of the deal. "Toll, in a single stroke, gets to be New Zealand’s dominant freight and logistics player. In addition to existing transport and stevedoring businesses, Toll will acquire all the country’s trains, Tranz Rail’s huge truck fleet and – just as important – the road-rail ferries that are the vital artery in moving goods between the North and South Islands. It will also be absolved from fixing the often defective railway network with the Government picking up that tab and leaving Toll to focus on upgrading the locomotives and wagon fleet" (Australian, 8/7/03; "Kiwi rail control to Toll", Robin Bromby). Toll’s takeover also included some land – 111 hectares at Clifford Bay, Marlborough (long touted as the site of a new inter-island ferry terminal, instead of Picton. Nothing has happened yet). And 17,026 hectares of lease land throughout the country, presumably the land under the rail tracks.

In that same Australian article, Toll’s Paul Little described Tranz Rail thus: "By any measure, it’s pretty sick". Toll was particularly infuriated by the five profit downgrades in 12 months and the "very poor performance by senior management in recent briefings to financial institutions" (ibid.). In February 2004, Tranz Rail reported a $346 million loss for the half-year ended December 2003. Analysts put this down to "years of under-investment coming home to roost" (Press, 25/2/04; "Tranz Rail backtracks in loss"). Toll recorded an $A85.2 million profit for the same period.

Reaction to the deal was positive from "stakeholders" (I love that jargon. Personally I’d like to hold the stake that gets shoved through the heart of one of these transnational vampires. But I digress). The Railfreight Action Group, which represents the interests of some of the biggest TNCs to use the rail network (and which had been consistently critical of Tranz Rail’s service and safety record, calling for renationalisation, in fact, without a trace of irony) declared its support. Tranz Scenic, the small Australian-owned company which runs the passenger train services, did likewise. Tranz Scenic has two contracts to operate on the rail network, running until 2030 and 2070 respectively. Neither contract has a sunset clause, so Tranz Scenic is unaffected by a change of ownership of Tranz Rail. Likewise. Tranz Metro Auckland is unaffected because it had already been renationalised. The future, and ownership, of Wellington’s Tranz Metro remains up in the air.

Toll’s next project was to woo the 3,000 small shareholders who held 25% of Tranz Rail’s shares. It had to achieve 90% ownership for its bid to become unconditional and to give it the legal right to compulsorily acquire the remaining 10%. For starters, it increased its bid from 95c to $1.10 per share, which won it the support of the major institutional shareholders. Toll’s bid valued Tranz Rail at $231 million (in 1993 the National government had sold the lot, including the track, for $328 million).

In the end, Toll did not get 90% of Tranz Rail, let alone 100%. To quote from Bill Rosenberg’s analysis of the Overseas Investment Commission’s August 2003 Decision Sheets:

"…Some minority shareholders – including some crucial institutional shareholders – refused to accept the 110 cents a share (though raised from 75 cents, then to 95 cents) on the basis of the value they thought Toll and the Government’s takeover of the track would add to the company. It is not clear what share price the $186 million quoted by the OIC refers to, and it presumably reflects the shareholding that Toll owned at the time of the application to the OIC. Toll’s 110 cents/share offer would have been worth $230 million, but holders of less than 90% of shares – the number required for Toll to be allowed to compulsorily acquire the remainder – accepted. Toll refused to say how many did accept, though it had 84.2% of shares not long before the offer finally closed in December 2003 after a number of extensions of the deadline. By that time, shares were being sold on the Stock Exchange for 165 cents, above even the independent valuation of between $1.34 and $1.62 in July, made by merchant bankers Grant Samuel. Clearly, Toll got an exceedingly good deal…".

Despite the fact that the Government had stated that its offer (buying a 35% stake in Tranz Rail at 67c per share) would go back on the table if Toll failed to acquire 90% of the shares, it did not, in fact, do so. Labour was so keen to let Toll take over Tranz Rail that it let the TNC get away with an 84.2% stake. Indeed Cullen proclaimed that the rail system would be better and safer with Toll running it (Press, 11/10/03, "Toll snares Tranz Rail", Marta Steeman). That remains to be seen. If Toll had succeeded in getting that 90% stake, then the law would have allowed it to compulsorily acquire the remaining 10%, at its $1.10 per share price. And, in February 2004, the Stock Exchange’s Market Surveillance Panel stripped Tranz Rail’s minority shareholders of any power and ruled that Toll’s takeover could go ahead, despite it not having been able to acquire the requisite 90% of the shares (it remained stuck on 84.2%). Without that waiver, Toll would have been disqualified from voting at the special meeting of Tranz Rail shareholders required to approve the takeover, and approval or refusal would have rested with those minority shareholders. The waiver was originally issued back in July 2003, when it appeared to be a mere formality for Toll to acquire the 90%. In fact it didn’t and minority shareholders were left fuming. The special meeting was duly held, in March 2004, and approved the deal (what a surprise).

Toll installed its own executives and board, warning New Zealanders not to expect any quick fix to Tranz rail’s problems. But don’t shed any tears for the previous Tranz Rail management, because they’re crying all the way to the bank. In total, the departure of Mike Beard, the Chief Executive, and six other top managers, may have cost Tranz Rail up to $6m in golden handshakes. Management made sure that it was well looked after – Tranz Rail’s Annual Report, for the year ending June 2003, "shows that the management bill is $20.5m – 3.8% of the company’s $610m of sales. ‘It will certainly be an area of review for us (management levels)’, Mr Little said. At Mainfreight, a transport and freight forwarder, the management salary bill was $7.5m, 1.8% of revenue" (Press, 13/10/03; "New chief for rail business", Marta Steeman). But there was one change from all the previous takeovers and restructurings of Tranz Rail – Toll said that no redundancies are planned. There must be very few workers left to sack.

Extract from Bill Rosenberg’s analysis of the Overseas Investment Commission’s August 2003 Decision Sheets.

Extract from Bill Rosenberg’s analysis of the Overseas Investment Commission’s August 2003 Decision Sheets.

Toll has shown an interest in other parts of the transport system in Aotearoa, taking a 12% shareholding in the Owens Group, preventing a full takeover by the largest local transport operator, Mainfreight. It already runs stevedoring services at the ports of Lyttelton, Napier and Tauranga, and operates warehouses through its Southern Distribution Centre, which has contracts with Lion Nathan, BHP NZ Steel, and Fletcher Forest Products among others. Its record in Australia shows it will not stop there: it aims to manage the services and information in its customers’ entire "supply chain", from transport to warehousing to ports.

In Australia in recent years it has purchased the Mayne Group (courier, air freight, mail room management); Brambles Industries cargo shipping between Melbourne and Tasmania; DX Group’s air, road and courier business; BHP Stevedoring and BHP Transport and Logistics NZ; FreightCorp and National Rail rail businesses, in partnership with noted union-buster, Patrick Corporation; Wesfarmers’ Western Australian freight services and logistics operations; Strang Stevedoring at Newcastle, Port Kembla, Geelong, Portland and Melbourne; Finemores Holdings (bulk tankers); ARN Logistics (paper and packaging services); International Corporate Removals Australia; and online relocation service movinghome.com.au. The company has a market capitalisation of A$2.1 billion and employs 15,000 staff.

Toll is more than 100 years old and used to be part of the Peko Wallsend group of companies, a name well known in the 20^th Century Australian mining industry. In 1986 it was sold to a group of its managers, headed by Paul Little and Peter and Mark Rowsthorn. They remain the principal owners today. Paul Little, the managing director, owns 11.95% of the shares; his colleague Mark Rowsthorn 11.65%. Little is worth $A288m and the father and son Rowsthorn team $A364m. The other 18 of the 20 largest shareholders are institutional investors. Those 20 largest investors own 65% of the shares. More detail about Toll can be found at its Website: http://www.toll.com.au.

"…Toll has a dubious reputation in Australia from their connections with Chris Corrigan of Patricks Stevedoring who battled the Maritime Union of Australia a few years back and is regarded as adamantly opposed to unions and workers rights…" (extract from President’s Report, The Transport Worker, December 2003; Jim Kelly, RMTU President).