Brookfield, GIP in talks for joint Asciano bid

After months of going head to head in their attempt to acquire the Australian logistics company, Brookfield, GIP and their respective consortium members are considering a joint all-cash offer for Asciano.

Two consortia that have been competing since October to take over Asciano, one of the largest logistics and ports operators in Australia, are now exploring the option of working together to acquire 100 percent of the company.

On Tuesday, Asciano announced that a consortium led by Brookfield Infrastructure Partners as well as a competing team led by Australian logistics firm Qube Holdings, of which Global Infrastructure Partners (GIP) is a member, are working on an all-cash offer of A$9.28 per Asciano share (€6.07; $6.69) to jointly acquire the shares they do not already own in the Australian ports operator.

The Qube-led consortium, which aside from GIP, includes the Canada Pension Plan Investment Board (CPPIB) and China's CIC Capital , acquired a 19.99 percent stake in Asciano in late October in order to block Brookfield, which announced last July its intention to acquire the Australian company.

Brookfield and its partners – Singapore's sovereign wealth fund GIC and the British Columbia Investment Management Corporation (bcIMC) – in turn acquired 19.2 percent of Asciano in early November.

“The contemplated consideration of A$9.28 cash per Asciano share represents a 39.5 percent premium to the undisturbed trading price of Asciano shares of A$6.65 on 30 June 2015,” the last trading day before Brookfield announced its offer, Qube said in a statement on Tuesday.

The A$9.28 per Asciano share offer is also higher than the latest cash and stock offer the Qube consortium submitted earlier this month, which has an implied value of A$9.24 per Asciano share and which Asciano's board recommended to its shareholders on 16 February, triggering a break fee of A$88 million now owed to the Brookfield consortium.

Aside from being superior in terms of price, the potential joint proposal would also address many of the regulatory challenges that the Brookfield consortium has faced from the outset, losing the lead it had over the Qube-led team and having to revise its proposal at least three times to address concerns raised by the Australian Competition and Consumer Commission (ACCC).

One of the key issues the ACCC had raised in regards to Brookfield's offer was that by acquiring Asciano, the Canadian firm would own Asciano's Pacific National above-rail business, which operates on Brookfield's rail network in Western Australia. Pacific National also transports coal to Darlymple Bay Coal Terminal, another Brookfield-owned asset. As a result, Brookfield was forced to amend its proposal last December, promising to divest part of Asciano in order to get ACCC approval.

Under the indicative terms of the new proposal, GIP, CPPIB, CIC Capital and certain members of the Brookfield consortium – other than Brookfield – would acquire Asciano's rail business.

Asciano's ports business would be carved up as follows:
• A Terminals consortium comprising Qube, Brookfield and members of the Brookfield consortium would acquire 100 percent of Asciano's Patrick container terminal business (excluding the 50 percent ACFS interest) for A$2.91 billion.
• The Brookfield consortium would acquire 100 percent of BAPS (Asciano's remaining bulk, auto and ports services businesses and 50 percent interest in ACFS Port Logistics) and the 50 percent interest in Australian Amalgamated Terminals (AAT) for A$925 million.

In a statement, Asciano's board said it expects the potential transaction to be attractive to its shareholders, but reiterated, as did Brookfield and Qube in their respective letters to the target company, that the discussions are preliminary, indicative and non-binding.

“In the absence of any alternative superior proposal capable of acceptance, the Asciano Board continues to recommend the Qube Consortium proposal as announced on 16 February 2016,” Asciano said. Should it change that recommendation it will have to pay the Qube team an A$88 million break fee.

Any resulting proposal would need to be unanimously recommended by the Asciano board. If no proposal emerges from these preliminary talks, “nothing prevents Brookfield and its consortium partners from continuing to develop a proposal consistent with the one we outlined in our letter to you of 7 February 2016 (being a cash proposal at A$9.28 less dividends and any break fee payable to any other parties),” Brookfield's chief executive Sam Pollock said in his letter to Asciano chairman Malcolm Broomhead.

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.