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Asciano recommends Qube proposal

The board of the Australian rail and ports operator is now asking its shareholders to reject the Brookfield offer after the asset manager decided not to match Qube’s bid by yesterday’s deadline.

After having recommended for months that its shareholders accept a takeover bid from Brookfield Infrastructure, Asciano’s board of directors today did an about-face by urging its shareholders to accept a rival offer from a consortium teaming Australian logistics company Qube Holdings and infrastructure investment firm Global Infrastructure Partners (GIP).

The announcement, filed with the Australian Securities Exchange (ASX), comes days after Asciano’s board determined that the Qube consortium’s offer of A$7.04 (€4.50; $5.02) and one Qube share for every Asciano share was “superior” to that of Brookfield’s. The Toronto-based asset manager had until end of business yesterday to submit a matching offer, which according to the announcement it did not do.

“The Asciano Board has considered the Qube Consortium Proposal and the Brookfield Offer and unanimously recommends the Qube Consortium Proposal to Asciano shareholders,” Asciano wrote in the statement.

An hour later, Asciano also filed its Third Supplementary Statement urging shareholders to reject Brookfield's offer.

With the change in recommendation, Brookfield’s Implementation Deed (BID) is terminated and its takeover offer is expected to lapse on 18 February. As a result, Brookfield will receive a break fee of A$88 million.

Still, the recommendation can change again if a superior proposal is made. Before Asciano announced on 8 February that it deemed the Qube consortium’s proposal superior, Brookfield Infrastructure chief executive Sam Pollock had informed Asciano’s chairman Malcolm Broomhead that the Toronto fund manager was re-working its previous cash and stock proposal to an all-cash offer at a value of A$9.28 per share, higher than Qube’s proposal at A$9.24 per share.

Brookfield was also in the process of bringing in two new investors, in addition to British Columbia Investment Management Corporation (bcIMC) and Singapore’s sovereign wealth fund GIC, thus limiting its participation in the transaction in order to appease the Australian Competition and Consumer Commission (ACCC).

Although the Brookfield consortium had a head start when it set out to acquire Asciano last August, the ACCC’s concerns that Brookfield’s acquisition of the Australian ports operator would lead to a substantial lessening of competition for the supply of above-rail haulage services have slowed the takeover attempt, resulting in multiple revisions of the initial proposal and a commitment by Brookfield to divest part of Asciano.

The Qube consortium, which also includes the Canada Pension Plan Investment Board (CPPIB) and China’s CIC Capital, faces less of a regulatory hurdle.

According to the Qube consortium proposal, Qube Holdings, also an Australian logistics firm, would acquire 100 percent of Asciano’s Patrick container terminal business for an enterprise value of A$2.65 billion and a 50 percent interest in Australian Amalgamated Terminals (AAT). GIP, CPPIB and CIC Capital would acquire Asciano’s rail business. The remaining bulk, auto and ports services businesses and 50 percent interest in ACFS Port Logistics (BAPS) would be sold to an entity to be established and owned by GIP, CPPIB and CIC Capital but with the intention to later sell those assets to a third party.

It is unclear whether Brookfield will submit a new proposal. However, in his letter to Asciano’s chairman dated 7 February, Pollock stated that a new offer could be lower than the previously mentioned A$9.28 per share should Asciano commit to paying a break fee to the Qube consortium, a provision that has now been included in the binding transaction documents Asciano signed with the Qube team. Brookfield declined to comment on its future plans.

Asciano's port and rail assets in Australia comprise container terminal operations in cities including Sydney, Melbourne, Brisbane and Perth, with a capacity of approximately 4.9 million TEUs (20 foot equivalent units) as well as port, terminal and supply chain services supporting shipping lines, importers, exporters, freight forwarders and customs brokers.

It also oversees nationwide rail haulage operations comprising 664 locomotives and over 14,000 wagons with the capacity to haul 180 million tons of freight diversified across mineral and bulk haulage, steel and intermodal.