Tranz Rail
Encyclopedia
Tranz Rail, formally Tranz Rail Holdings Ltd (New Zealand Rail Ltd until 1995), was the main rail
operator in New Zealand
from 1991 until it was purchased by Toll Holdings
in 2003.
On 28 October 1990 the New Zealand government removed core rail transport and shipping operations from the New Zealand Railways Corporation
, creating a separate entity called New Zealand Rail Ltd. The government wrote off NZ$1.3 billion in debt acquired by the company from the Railways Corporation, and injected a further $300 million in capital. Despite this capital injection the company remained only marginally profitable, reporting after-tax profits of $36.2 million in 1992 and $18 million in 1993.
The Bolger National government
privatised New Zealand Rail Ltd in 1993. The company was sold for $400 million to a consortium named Tranz Rail Limited, made up of merchant bankers Fay, Richwhite & Company
(40% via the investment company Pacific Rail, later renamed Midavia Rail), the American railroad Wisconsin Central
(40%), and Berkshire Partners
(20%).
One of New Zealand Rail's most controversial safety incidents happened in 1994 when 6-year-old Morgan Jones fell under an observation carriage on the Coastal Pacific express, after a hand rail he was holding onto suddenly fell off. Although Jones survived the accident, he was left blind and had a leg amputated.
In 1995 the company was renamed Tranz Rail Holdings Ltd, and listed in 1996 on the New Zealand Sharemarket
and NASDAQ
. The listing was made possible by Fay Richwhite & Company selling down its shares.
in 1997. The investment provided only marginal returns, and Toll sold the TasRail
shareholding to Pacific National
, a Toll Holdings
partnership with Patrick Corporation
, in 2003.
for The Worst Transnational Corporation operating in New Zealand on three occasions and was the first corporation inducted into the "hall of shame". The Awards came amidst critical reports of lax safety standards, inadequate maintenance, asset stripping
and insider trading
. Toll NZ
has been a finalist for the Roger Award twice.
. The company had gained its shareholding by selling its fibre optic network along the North Island Main Trunk to Clear.
In 2001 the company sold 50% of its Tranz Scenic
long-distance rail passenger
operation to two directors of the Victoria
, Australia
rail operator West Coast Railway
. In 2003 this share was purchased by Toll NZ, as one of the West Coast Railway directors had died and the business was not performing adequately.
Under CEO Michael Beard, Tranz Rail sought to sell assets deemed to be non-core and contract out some operations, ie track maintenance was outsourced and the DFT locomotive fleet sold to a leasing company, and then leased back.
Tranz Rail sold the Auckland suburban rail network to the government in 2002 for $81 million.
based RailAmerica
made a takeover offer of 75c per share for Tranz Rail. The offer was later withdrawn when the share price dropped below 50c, and the firm was then put up for sale by the owners. In June 2003, the Government announced that it would buy back the rail network for $1 and purchase a 35% stake in the firm for $76 million (67c per share), which would have given it effective control of the company. The Government would have had the right to nominate three of the seven directors on the board. This met with approval from the Rail and Maritime Transport Union (RMTU) which had run a vigorous "Take Back The Track" campaign for the government to renationalise the railway network. The Rail Freight Action Group, which represents the interests of some of the biggest rail freight using companies, declared its support. Tranz Scenic, the small half-Australian owned company that ran long-distance passenger train services, did likewise.
In July 2003 the Government announced that it was dropping its bid to buy a 35% stake in Tranz Rail, instead allowing Toll to succeed in its takeover bid. Toll’s bid valued Tranz Rail at $231 million. The Government reached a Heads of Agreement with Toll later that month, and eventually bought the rail network for $1, plus $50 million for property assets including leases and Wellington Railway Station
. The deal also established a performance regime creating incentives for Toll if it shifts freight from road to rail, and penalties if freight carriage falls below 70% of current levels. If Toll increases freight volumes by 10% or more on certain lines the Government will grant it a track access charge holiday. The parties agreed the Government would spend $200 million over the next five years upgrading the track via the New Zealand Railways Corporation, now operating as ONTRACK
.
Toll did not achieve the 90% stake of Tranz Rail it required to meet the Government's deal and compulsorily acquire the remaining 10% of shares, despite raising its offer again to $1.10 per share. In 2003, around 3,000 small shareholders held 25% of Tranz Rail’s shares, many of them major institutional shareholders such as AMI and Infratil
. After a number of extensions of the deadline set by Toll, it held 84.2% of shares in Tranz Rail after the offer closed in December 2003. By that time, shares were being sold on the New Zealand Stock Exchange for $1.65, above even the independent valuation of between $1.34 and $1.62 made in July by merchant bankers Grant Samuel. Despite Toll not achieving the 90% requirement, the Government honoured the Heads of Agreement made in July.
In February 2004, Tranz Rail reported a $346 million loss for the half-year ended December 2003. In the same year, it carried 2.1 million tonnes of coal on the Midland line
in the South Island. The departure of the former Chief Executive Officer, Michael Beard, and six other top managers cost it $6 million in exit payments.
The company was renamed Toll NZ
and did not retain any of the Tranz Rail directors. In May 2008 the New Zealand Government agreed to buy Toll NZ Ltd (less its trucking and distribution operations) for $665 million.
(along with his shell company
Midavia Rail, formerly Pacific Rail) agreed to pay NZ$20 million, but did not admit liability.
Rail transport
Rail transport is a means of conveyance of passengers and goods by way of wheeled vehicles running on rail tracks. In contrast to road transport, where vehicles merely run on a prepared surface, rail vehicles are also directionally guided by the tracks they run on...
operator in New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
from 1991 until it was purchased by Toll Holdings
Toll Holdings
TOLL , properly TOLL Holdings Limited, is Australia's largest transport company, based in Melbourne, Victoria. The company has operations in road, rail, sea and air in 55 countries....
in 2003.
Formation
New Zealand Railways Corporation
KiwiRail Network, formerly ONTRACK , is the infrastructure arm of KiwiRail. The ONTRACK trading name was introduced in 2004 after the government repurchased all of New Zealand's rail infrastructure from Toll NZ. It does not operate revenue rolling stock...
, creating a separate entity called New Zealand Rail Ltd. The government wrote off NZ$1.3 billion in debt acquired by the company from the Railways Corporation, and injected a further $300 million in capital. Despite this capital injection the company remained only marginally profitable, reporting after-tax profits of $36.2 million in 1992 and $18 million in 1993.
The Bolger National government
Fourth National Government of New Zealand
The Fourth National Government of New Zealand was the government of New Zealand from 2 November 1990 to 27 November 1999. Following in the footsteps of the previous Labour government, the fourth National government embarked on an extensive programme of spending cuts...
privatised New Zealand Rail Ltd in 1993. The company was sold for $400 million to a consortium named Tranz Rail Limited, made up of merchant bankers Fay, Richwhite & Company
Fay Richwhite
Fay, Richwhite & Company is the investment vehicle of Switzerland-based New Zealand merchant bankers Sir Michael Fay and David Richwhite.The firm was the prime focus of the "Winebox Inquiry" which dealt with, among other things, tax-avoidance arrangements in the Cook Islands...
(40% via the investment company Pacific Rail, later renamed Midavia Rail), the American railroad Wisconsin Central
Wisconsin Central Transportation
Wisconsin Central Ltd. is a railroad subsidiary of the Canadian National Railway. At one time, its parent Wisconsin Central Transportation Corporation owned or operated railroads in the United States, Canada , the United Kingdom , New Zealand , and Australia .- Overview...
(40%), and Berkshire Partners
Berkshire Partners
Berkshire Partners, the Boston-based private equity firm, has invested in leading mid-sized companies for over twenty-five years through eight investment funds with aggregate capital of $11 billion. Berkshire has developed specific industry experience in several areas including retailing, consumer...
(20%).
One of New Zealand Rail's most controversial safety incidents happened in 1994 when 6-year-old Morgan Jones fell under an observation carriage on the Coastal Pacific express, after a hand rail he was holding onto suddenly fell off. Although Jones survived the accident, he was left blind and had a leg amputated.
Renamed Tranz Rail
New Zealand Exchange
NZX Limited is a stock exchange located in Wellington, New Zealand. Since July 2005 it has been located in NZX Centre, the renovated Odlins building on the Wellington waterfront...
and NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
. The listing was made possible by Fay Richwhite & Company selling down its shares.
TasRail investment
In partnership with Wisconsin Central as the Australian Transport Network, Tranz Rail invested in Tasmanian rail operator TasRail (1978-2004)TasRail
Tasrail was the brand name of the Australian National Railways Commission's operations on the mainline railways in Tasmania, formed when Australian National absorbed the former Tasmanian Government Railways in 1978...
in 1997. The investment provided only marginal returns, and Toll sold the TasRail
TasRail
Tasrail was the brand name of the Australian National Railways Commission's operations on the mainline railways in Tasmania, formed when Australian National absorbed the former Tasmanian Government Railways in 1978...
shareholding to Pacific National
Pacific National
Pacific National is one of Australia's largest private rail freight businesses. Originally a joint venture between Patrick Corporation and Toll Holdings; it is now a wholly owned subsidiary of Asciano Limited following the restructure of Toll Holdings....
, a Toll Holdings
Toll Holdings
TOLL , properly TOLL Holdings Limited, is Australia's largest transport company, based in Melbourne, Victoria. The company has operations in road, rail, sea and air in 55 countries....
partnership with Patrick Corporation
Patrick Corporation
Patrick Corporation Ltd was an Australian publicly listed logistics conglomerate. Headed by CEO Chris Corrigan before it was absorbed by Toll Holdings in 2006, Patrick had interests in shipping, rail and aviation, including a 62% shareholding in airline Virgin Blue...
, in 2003.
Roger Award
Tranz Rail won the Roger AwardRoger Award
The Roger Award For The Worst Transnational Corporation Operating in New Zealand is an annual media campaign run since 1997 by two activist organisations, Campaign Against Foreign Control of Aotearoa and GATT Watchdog...
for The Worst Transnational Corporation operating in New Zealand on three occasions and was the first corporation inducted into the "hall of shame". The Awards came amidst critical reports of lax safety standards, inadequate maintenance, asset stripping
Asset stripping
Asset stripping involves selling the assets of a business individually at a profit. The term is generally used in a pejorative sense as such activity is not considered productive to the economy. Asset stripping is considered to be a problem in economies such as Russia or China that are making a...
and insider trading
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
. Toll NZ
Toll NZ
Toll Group Limited is a New Zealand trucking company. A subsidiary of the Australian company Toll Holdings, it has its headquarters in Auckland. It carries out operations by road and in the air, and formerly by rail and sea....
has been a finalist for the Roger Award twice.
Asset sales
In 1994 the company sold its 15% stake in Clear CommunicationsClear Communications
Clear Communications was a telecommunications company based in New Zealand. Until merging into Telstra's operations in 2001, it was the biggest rival to Telecom New Zealand....
. The company had gained its shareholding by selling its fibre optic network along the North Island Main Trunk to Clear.
In 2001 the company sold 50% of its Tranz Scenic
Tranz Scenic
Tranz Scenic is the long-distance passenger train brand of KiwiRail, formed from the New Zealand Railways Corporation InterCity Rail services. Tranz Scenic was renamed along with the other operating divisions of Tranz Rail in 1995...
long-distance rail passenger
Passenger
A passenger is a term broadly used to describe any person who travels in a vehicle, but bears little or no responsibility for the tasks required for that vehicle to arrive at its destination....
operation to two directors of the Victoria
Victoria (Australia)
Victoria is the second most populous state in Australia. Geographically the smallest mainland state, Victoria is bordered by New South Wales, South Australia, and Tasmania on Boundary Islet to the north, west and south respectively....
, Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
rail operator West Coast Railway
West Coast Railway (Victoria)
West Coast Railway was the trading name of The Victorian Railway Company Pty Ltd, a railway company operating in Victoria, Australia. The company operated passenger services between Melbourne and Warrnambool from 1993 to 2004.-History:...
. In 2003 this share was purchased by Toll NZ, as one of the West Coast Railway directors had died and the business was not performing adequately.
Under CEO Michael Beard, Tranz Rail sought to sell assets deemed to be non-core and contract out some operations, ie track maintenance was outsourced and the DFT locomotive fleet sold to a leasing company, and then leased back.
Tranz Rail sold the Auckland suburban rail network to the government in 2002 for $81 million.
Takeover
In May 2003, United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
based RailAmerica
RailAmerica
RailAmerica, Inc., based in Jacksonville, Florida, is a holding company of a number of short-line railroads and regional railroads in the United States and Canada....
made a takeover offer of 75c per share for Tranz Rail. The offer was later withdrawn when the share price dropped below 50c, and the firm was then put up for sale by the owners. In June 2003, the Government announced that it would buy back the rail network for $1 and purchase a 35% stake in the firm for $76 million (67c per share), which would have given it effective control of the company. The Government would have had the right to nominate three of the seven directors on the board. This met with approval from the Rail and Maritime Transport Union (RMTU) which had run a vigorous "Take Back The Track" campaign for the government to renationalise the railway network. The Rail Freight Action Group, which represents the interests of some of the biggest rail freight using companies, declared its support. Tranz Scenic, the small half-Australian owned company that ran long-distance passenger train services, did likewise.
Toll Holdings offer
In May 2003, the Australian transport firm Toll Holdings purchased a 6.1% share of Tranz Rail, increasing its share to 10.1% by June and 19.9% in July. Toll then launched its own takeover bid, initially offering 75c per share, later increased to 95c.In July 2003 the Government announced that it was dropping its bid to buy a 35% stake in Tranz Rail, instead allowing Toll to succeed in its takeover bid. Toll’s bid valued Tranz Rail at $231 million. The Government reached a Heads of Agreement with Toll later that month, and eventually bought the rail network for $1, plus $50 million for property assets including leases and Wellington Railway Station
Wellington Railway Station
Wellington Railway Station is the southern terminus of New Zealand's North Island Main Trunk railway, Wairarapa Line and Johnsonville Line. In terms of number of services and in passenger numbers, it is New Zealand's busiest railway station.-Development:...
. The deal also established a performance regime creating incentives for Toll if it shifts freight from road to rail, and penalties if freight carriage falls below 70% of current levels. If Toll increases freight volumes by 10% or more on certain lines the Government will grant it a track access charge holiday. The parties agreed the Government would spend $200 million over the next five years upgrading the track via the New Zealand Railways Corporation, now operating as ONTRACK
OnTrack
OnTrack was a regional rail line that operated in Syracuse, New York from 1994 to 2007. During its operation, Syracuse was the smallest city in the United States to have regional train service. The line ran from Colvin Street on the city's south side via Syracuse University and Armory Square to the...
.
Toll did not achieve the 90% stake of Tranz Rail it required to meet the Government's deal and compulsorily acquire the remaining 10% of shares, despite raising its offer again to $1.10 per share. In 2003, around 3,000 small shareholders held 25% of Tranz Rail’s shares, many of them major institutional shareholders such as AMI and Infratil
Infratil
Infratil Limited is a New Zealand-based infrastructure investment company. It owns several airports, electricity generators and retailers, and a public transport business, with operations in New Zealand, Australia and Europe. Infratil was founded by Lloyd Morrison, a Wellington-based merchant...
. After a number of extensions of the deadline set by Toll, it held 84.2% of shares in Tranz Rail after the offer closed in December 2003. By that time, shares were being sold on the New Zealand Stock Exchange for $1.65, above even the independent valuation of between $1.34 and $1.62 made in July by merchant bankers Grant Samuel. Despite Toll not achieving the 90% requirement, the Government honoured the Heads of Agreement made in July.
In February 2004, Tranz Rail reported a $346 million loss for the half-year ended December 2003. In the same year, it carried 2.1 million tonnes of coal on the Midland line
Midland Line, New Zealand
The Midland line is a 212 km section of railway between Rolleston and Greymouth in the South Island of New Zealand. The line features five major bridges, five viaducts and 17 tunnels, the longest of which is the Otira tunnel.-Freight services:...
in the South Island. The departure of the former Chief Executive Officer, Michael Beard, and six other top managers cost it $6 million in exit payments.
The company was renamed Toll NZ
Toll NZ
Toll Group Limited is a New Zealand trucking company. A subsidiary of the Australian company Toll Holdings, it has its headquarters in Auckland. It carries out operations by road and in the air, and formerly by rail and sea....
and did not retain any of the Tranz Rail directors. In May 2008 the New Zealand Government agreed to buy Toll NZ Ltd (less its trucking and distribution operations) for $665 million.
Securities Commission investigation
In late 2004, the New Zealand Securities Commission launched an investigation into the company regarding alleged insider trading. In June 2007 David RichwhiteDavid Richwhite
David MacKellar Richwhite is a New Zealand investment banker and was a partner in Fay, Richwhite & Company with Sir Michael Fay.Educated at King's College, Auckland and the University of Otago, where he graduated with a Bachelor of Commerce degree, Richwhite's personal wealth was largely acquired...
(along with his shell company
Shell (corporation)
A shell corporation is a company which serves as a vehicle for business transactions without itself having any significant assets or operations. Shell corporations are not in themselves illegal and have legitimate business purposes. However, they are a main component of the underground economy,...
Midavia Rail, formerly Pacific Rail) agreed to pay NZ$20 million, but did not admit liability.