Brookfield Proposals on Asciano Deal Rejected by Regulator

  • Asset manager had offered a plan to counter ACCC's concerns
  • Brookfield may have to consider asset sales to gain approval

Australia’s competition watchdog has rejected proposals by Brookfield Asset Management Inc. to counter the regulator’s concerns about the Canadian firm’s proposed A$9 billion ($6.5 billion) takeover of rail and port operator Asciano Ltd.

The Australian Competition and Consumer Commission won’t accept a plan put forward by the investment firm’s Brookfield Infrastructure Partners unit, which was meant to address issues arising from the integration of rail track and haulage assets in Western Australia state and the combination of port and rail assets in Queensland, the regulator said in a statement. 

Brookfield Infrastructure and Asciano said in separate statements they are working to evaluate alternatives to address the regulator’s concerns, including so-called structural undertakings.

“Asset sales are what will have to happen now, because Brookfield will have to split off some parts of the company to satisfy the ACCC’s vertical integration concerns,” Evan Lucas, a market strategist at IG Ltd., said by phone from Sydney. “They just have to work out how to do that without undermining their whole rationale for the deal.”

Brookfield Infrastructure said it remains committed to working with the ACCC to secure pre-clearance of its proposed transaction.

Unacceptable Undertakings

Canada’s largest alternative-asset manager offered so-called behavioral undertakings after the ACCC raised concerns last month about its plan to buy Asciano for cash and stock in Brookfield Infrastructure Partners. The deal, announced in August, would give Brookfield control of the Pacific National rail business and the Patrick stevedoring businesses at ports in Melbourne, Sydney and Brisbane. A group led by Qube Holdings Ltd. is proposing a rival plan to carve up Asciano’s assets. Both offers require ACCC approval.

“After detailed consideration, the ACCC has concluded that the undertakings are not acceptable, and accordingly we will not be conducting third-party consultation,” ACCC Chairman Rod Sims said in the statement.

Asciano shares fell 0.8 percent to A$8.68 at the close of trading in Sydney, while the benchmark S&P/ASX 200 Index climbed 0.3 percent. Qube rose 1.7 percent to A$2.37.

Qube Challenge

The ACCC’s position could mean that the Qube proposal, which is backed by New York-based Global Infrastructure Partners and Canada Pension Plan Investment Board, has a slight advantage over Brookfield’s on an antitrust basis, IG’s Lucas said.

The ACCC hasn’t yet formed a final view on whether it will oppose Brookfield Infrastructure Partners’ proposed purchase of Asciano, and it expects to make a final decision Dec. 17. The regulator also began consulting on the Qube proposal and a decision is expected Feb. 11, according to its website.

The regulator had concerns about Bermuda-based Brookfield Infrastructure Partners’ existing ownership of the 5,500-kilometer (3,418-mile) Westnet rail-track network in Western Australia and the Dalrymple Bay Coal Terminal in Queensland.

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