Babcock shareholders OK Brookfield recap

The A$1.8bn deal is now expected to reach financial close on 20 November.

The shareholders of Babcock & Brown Infrastructure have approved a recapitalisation proposal put forth by Toronto-based Brookfield Asset Management, clearing a major hurdle for the A$1.8 billion (€1.1 billion; $1.6 billion) transaction.

Brookfield now expects the deal to close on 20 November, according to a press release.

As part of the deal, Brookfield and its affiliates have an opportunity to invest approximately $945 million to acquire a 40 percent interest in the Australian Stock Exchange-listed infrastructure fund and take direct stakes in some of its flagship assets.

On top of that, Babcock would also to raise a further A$625 million through an institutional placement and A$250 million through a security purchase plan to existing shareholders.

The directors of Babcock & Brown Infrastructure recommended the proposal to shareholders in part because they thought it was “the only proposal available” that would be “capable of being executed”.

A group of international hedge funds represented by The Royal Bank of Scotland made an alternative proposal, but the board rejected it on the grounds that posed “considerable execution risks”.

The firm needs to drastically reduce its leverage as quickly as possible. If the Brookfield recapitalisation proposal is ultimately successful, Babcock’s total debt would fall to A$3.76 billion, or 5.9x its forecasted earnings before interest, tax, depreciation and amortisation (EBITDA) for 2010. Babcock has forecast its EBITDA for the full year 2010 to be around A$637 million.

The Australian Financial Review reported last week that RBS was thinking of providing an alternative proposal. Babcock acknowledged that it was aware that RBS was in discussions with some of its investors about launching an alternative proposal but no proposal was ever received.