(Bloomberg News circulated the following story on May 15.)
AUCKLAND, N.Z. — RailAmerica Inc., an operator of 49 railroads in five countries, offered $225 million in cash and assumed debt for Tranz Rail Holdings Ltd., whose shares have slumped as it sells assets to pay debt and stem a slide in earnings.
Boca Raton, Florida-based RailAmerica offered 75 New Zealand cents a share for New Zealand’s railroad company, 44 percent more than the Tranz Rail’s stock traded at yesterday. RailAmerica will also assume $135 million of its debt.
RailAmerica is offering to buy a railroad company whose market value has shrunk by two-thirds in the past year as it hauled less milk, logs and coal and earnings fell. Tranz Rail may take longer to revive than RailAmerica’s investments in other countries, such as in neighboring Australia, analysts said.
“This is not a situation like Australia where RailAmerica will turn things around quickly and see huge gains,” said Morgan Keegan analyst Arthur Hatfield, who rates the shares “outperform” and doesn’t own them. “Tranz Rail has had problems maintaining profitability. It will be a year or so before the shareholders of RailAmerica see any real benefit.”
RailAmerica is the second U.S. railroad company to seek returns from Tranz Rail. Wisconsin Central Transportation Corp. owned almost a quarter of the railroad during the 1990s. The stake was sold last year after Wisconsin was acquired by Canadian National Railway Co.
Stock Price
Tranz Rail’s shares rose 38 percent to 72 cents at 10:30 a.m. in Wellington, having earlier traded as high as 78 cents. Some analysts said the shares would be worth at least 95 cents if the business was broken up and sold.
“I’m not sure they’ll be successful at 75” cents, said Nat Vallabh, who holds almost 7 percent of the company among the $600 million he manages for AMP Henderson Global Investors. “There is value in the stock,” he said.
Standard & Poor’s cut Tranz Rail’s credit rating to CCC last month on concern it won’t meet interest payments. The railroad has been selling assets to concentrate on its freight business and to meet interest payments. Competition from trucking and rival ferry companies and a drought the cut farming output have hurt Tranz Rail’s profit.
Tranz Rail, sold by the country’s government in 1993, has struggled to maintain profits in recent years as trucking firms have taken more of its business and it has had to spend more maintaining its tracks and building freight facilities for new customers. It has 3,900 kilometers (2,400 miles) of track.
Earnings Outlook
Last month, Tranz Rail cut its year profit forecast 11 percent and offered to sell its trucking company to help pay debt.
RailAmerica is being advised by UBS Warburg and Morgan Stanley. Its offer for Tranz Rail shares will start on May 30, the U.S. company said in a statement.
RailAmerica already operates 49 railroads in the U.S., Canada, Chile, Argentina and Australia. RailAmerica in 1999 bought the 3,200-mile (5,200-kilometer) Freight Australia network for $103 million in April 1999 from the state government of Victoria.
Shares of RailAmerica rose 42 cents, or 5.7 percent to $7.80 at 4:17 p.m. in New York Stock Exchange composite trading.