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Investors want answers after ACCC delays Asciano deal

Pacific National is a subsidiary of Asciano. Photo: Asciano

Key shareholders want Asciano to provide an alternative plan in case Brookfield’s proposed takeover is blocked by the government’s competition watchdog.

A Fairfax report on Monday suggests the ASX-listed owner of rail giant Pacific National is being urged by investors to prepare for the Australian Competition and Consumer Commission to object to Brookfield’s $8.9 billion takeover offer.

Asciano’s share price took a turn last week after the ACCC opted to delay its decision on the takeover offer until December, and chairman Rod Sims said the ACCC was concerned Brookfield’s existing interests in Queensland and Western Australia would conflict with an acquisition of Pacific National.

Now Asciano boss Malcolm Broomhead is reportedly being asked to provide an alternative strategy for the company, should the massive takeover move not go ahead.

“We’d like to get his perspective on how things will progress from here and what the options are either way – whether the transaction can be progressed, and if it doesn’t, to discuss how Asciano can continue to focus on executing well,” UBS Global Asset Management head of Australian Equities Jakov Males was quoted by Fairfax.

UBS owns roughly 7.6% of Asciano. At $9.15 a share UBS stands to earn $678 million in cash and shares if the takeover goes through.

The ACCC announcement sent Asciano’s share price down 86 cents last week, to a Friday close of $7.60 a share.

The competition authority says if Brookfield’s existing WA rail business – Brookfield Rail – was to combine with Pacific National, the merger could create an unwanted level of vertical integration.

The ACCC has the same concerns over Brookfield’s ownership of Dalrymple Bay Coal Terminal in Queensland.

UBS’s Males doesn’t see the issue, however.

“We understand [the ACCC’s] comments about vertical integration because there is an element of it in the deal,” Males was quoted as saying. “But in terms of their concerns over a lessening of competition, which is their key mandate, we don’t really see it.”

From the ACCC’s perspective, however, lessening of competition is a near-unavoidable symptom of vertical integration.

“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 WA and Queensland,” Sims said when the authority announced a delayed decision last week.

In lieu of making a decision last week, the competition authority released a Statement of Issues, inviting further submissions from the market, before it makes its final decision by December 17, 2015.

Brookfield is reported to be open to the ACCC holding supervisory powers over their rail operations in WA and Queensland should the merger go ahead.

But Sims said creating a market with more ACCC oversight was not desirable.

“The ACCC’s general view is that competition is to be preferred to regulation whenever possible,” he said. “Whether access regulation can provide appropriate outcomes in a situation of vertical integration depends on the extent of any competition concerns.

“Competition concerns can be particularly acute in cases involving key infrastructure assets of a technical nature, which require many operational decisions to be made on a daily and longer-term basis.”

An access regime may not be capable of maintaining competition when the owner of such infrastructure vertically integrates with one of a very limited number of users of that infrastructure, the ACCC chairman said.

Takeover talks were announced by Brookfield and Asciano in July.

The sides announced a $9.15 cash and scrip deal in August, with the board of Asciano recommending the $8.9 billion deal to shareholders for their approval.

Asciano owns rail operator Pacific National, and ports and terminals business Patrick.

Brookfield wants to create a new ASX-listed business, Brookfield Infrastructure, through the sale. Asciano shareholders would receive $6.94 in cash, along with 0.0387 shares in the new company (implied value of $2.21), for every Asciano share they own.

The ACCC announced it would review the takeover during the July talks.

During the submissions period, several key rail users were especially vocal expressing their disapproval of the deal.

Grain Producers Australia chairman Andrew Weidemann said without a serious regulatory overhaul, a Brookfield Rail/Pacific National merger would force an organisation like his “into being a price taker with little negotiating power”.

WA Farmers  told Fairfax it had urged the ACCC to deny the proposed acquisition.

“The monopolistic nature of the infrastructure involved will lead to anti-competitive behaviour in the already turbulent rail freight network in WA,” WA Farmers was quoted to have said.

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