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Brookfield, GIP in joint $6.75bn Asciano bid

Once competing against each other, two consortia including both fund managers have teamed up with an all-cash offer for the Australian rail and ports operator.

With a joint all-cash bid of A$9.05 billion (€6.09 billion; $6.75 billion), the pursuit of Asciano, one of the largest rail and port logistics companies in Australia, seems close to reaching a successful conclusion after months of offers, revisions and regulatory reviews.

A consortium led by Toronto-based Brookfield  Infrastructure Partners (BIP) and one led by Qube Holdings, an Australian logistics company, are offering Asciano shareholders A$9.28 per share to acquire the entire business.

“We are pleased to deliver a joint transaction that is on an all-cash basis and clearly superior to any previous offer,” Brookfield Infrastructure chief executive Sam Pollock said in a statement. “Our transaction has been structured with a view to eliminating many of the issues associated with the prior offers and therefore delivering a high degree of transaction certainty for Asciano shareholders.”

Under the terms of the proposed transaction, the Brookfield and Qube consortia will acquire Patrick Terminals, Asciano's container terminal operations, on a 50/50 basis for A$3.84 billion. Brookfield and its partners, which include the British Columbia Investment Management Corporation (bcIMC), Singapore's sovereign wealth fund GIC, and most recently the Qatar Investment Authority, will acquire 100 percent of Asciano's Bulk & Automotive Port Services (BAPS) business and 50 percent of Australian Amalgamated Terminals (AAT) for A$925 million.

Qube will have the right to subsequently acquire the 50 percent interest in AAT out of the BAPS business for A$150 million, subject to regulatory approval, or to nominate a third-party buyer.

Asciano's rail business will be split between the two investor groups with some of Qube's partners – Canada Pension Plan Investment Board (CPPIB), Global Infrastructure Partners (GIP) and China's CIC Capital – and except for Qube, will acquire 76 percent of the business. Certain members of the Brookfield consortium, but with the exception of Brookfield, will acquire the remaining 24 percent.

The transaction is so structured to avoid concerns raised by the Australian Competition and Consumer Commission (ACCC) when Brookfield and its partners, which did not include the Qatar Investment Authority initially, announced its plans to acquire Asciano last July .

The ACCC feared that by acquiring 100 percent of the Australian logistics company, Brookfield would have an unfair advantage over its competitors since it would acquire Asciano's Pacific National above-rail business, which operates on Brookfield's rail network in Western Australia. Furthermore, Pacific National also transports coal to another Brookfield-owned asset, Darlymple Bay Coal Terminal.

As a result of the red flags raised by the ACCC, Brookfield lost the lead it had over the Qube consortium and had to revise its proposal at least three times. In the meantime, the Qube team acquired a 19.99 percent stake in Asciano and put forth its own binding offer on 28 January.

In a separate statement on Tuesday, Asciano said it had entered into a binding agreement – a scheme implementation deed – with the Brookfield and Qube consortia, with its board recommending that shareholders accept the offer in the absence of any superior proposal. As a result of the board recommendation of the joint scheme, the Qube proposal, which was revised on February 8, has been terminated by mutual agreement. The agreed break fee of A$88 million is not payable to the Qube team.

The transaction still has a number of hurdles to overcome including court approval, ACCC clearance, approval from the Australian Foreign Investment Review Board and the New Zealand Overseas Investment Office as well as European Union Merger clearance.

Court approval is required since the acquisition would be realized under a scheme of arrangement as opposed to an off-market takeover bid. According to a guide compiled by Australian law firm Ashurst, a scheme “is a court approved arrangement between the target company and its shareholders for the transfer or cancellation of their shares in exchange for cash and/or shares of the acquirer. The arrangement must be approved at a meeting of target shareholders.”

Asciano shareholders are expected to vote on the transaction in early June. Neither the Qube consortium nor the Brookfield consortium, which owns 19.2 percent of Asciano, will vote. The scheme requires approval by at least 75 percent of votes cast.

Should all approvals be granted, Brookfield expects the merger to be completed around the end of the second quarter of this year.

Asciano's port and rail assets in Australia comprise container terminal operations in cities including Sydney, Melbourne, Brisbane and Perth with a capacity of about 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.