Asciano Plunges as Brookfield Takeover Faces More Scrutiny

  • Competition watchdog says $6.5 billion deal poses concerns
  • Regulator to decide on takeover Dec. 17 after consultation

Asciano Ltd., an Australian port and rail operator, fell the most in more than six years as a proposed A$8.9 billion ($6.5 billion) takeover by Canada’s Brookfield Asset Management Inc. comes under threat amid competition concerns.

Asciano fell 7.6 percent, the biggest decline since June 2009, to A$7.88 at the close in Sydney. The Australian Competition & Consumer Commission said the deal could lessen competition in rail haulage in Queensland and Western Australia states and sought further feedback.

“The ACCC sees a substantial potential lessening in competition, and now it’s up to Brookfield to convince them otherwise,” said James Santo, who works in special situations sales at Aviate Global in Sydney. “They need to engage the regulator and be prepared to accept the access undertakings and asset sales that may be required, or its going to be difficult for them to get the outcome.”

Brookfield, Canada’s largest alternative asset manager, in August led a group that agreed to buy the Australian company in a cash and stock deal to gain control of its Pacific National rail unit and stevedoring businesses at ports in Melbourne, Sydney and Brisbane. The transaction would be the group’s largest in Australia, exceeding the A$4.8 billion it paid in 2007 for Multiplex Group, the builder of London’s Wembley Stadium.

Coal Terminal

Brookfield Infrastructure Partners, the Canadian company’s Bermuda-based infrastructure arm, already owns the Westnet rail business in Western Australia and controls the Dalrymple Bay Coal Terminal in Queensland.

Market participants had raised “strong concerns” about Brookfield combining assets with Pacific National and about its “ability and incentive to favor Pacific National through its Brookfield Rail and DBCT businesses,” the ACCC wrote. The regulator deferred a decision on the proposal until Dec. 17.

“The ACCC is concerned that the vertical integration will lead to a substantial lessening of competition in related markets for the supply of above rail haulage services in Western Australia and Queensland,” Chairman Rod Sims said in the statement.

Issues to Resolve

Brookfield is committed to resolving the issues in the two areas identified by the ACCC, it said in an e-mailed statement. Western Australian cooperative CBH is a monopoly provider of rail haulage, grain storage and export facilities to grain farmers and Asciano is not a participant in those sectors, while Dalrymple Bay Coal Terminal is subject to access undertakings and has obligations not to discriminate between terminal users, it said.

“We remain confident that all concerns identified by the Commission can be fully addressed through a combination of the existing regulatory frameworks and commitments given by Brookfield,” the company said.

Asciano is aware that Brookfield is working closely with the regulator to address the concerns and will consider the implications for a planned Nov. 10 shareholder vote on the transaction, the Sydney-based company said in a separate statement.

There had been opposition to the deal in Western Australia from farmers and mining companies concerned about access to the rail network, Aviate Global’s Santo said.

“The problem is it is critical infrastructure, you don’t build two rail lines into these areas,” Santo said by phone. “So the regulator has to be comfortable that the access will be available and at a reasonable price.”

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