Having raised red flags over Brookfield Infrastructure’s proposed takeover of Australian port operator Asciano, the Australian Competition and Consumer Commission (ACCC) is now seeking market feedback on the Canadian fund manager’s latest proposed remedies.
According to a statement released by the ACCC on Tuesday, Brookfield’s revised proposal involves two structural undertakings: a commitment to divest Pacific National’s intermodal business, which operates the interstate freight service around Australia and Pacific National’s limited bulk operations in Western Australia, to an independent party; and commitments to ensure independent operation and decision-making at Brookfield’s Darlymple Bay Coal Terminal.
The proposed remedies are a second attempt by Brookfield to address the concerns the ACCC raised in the Statement of Issues it released on October 15, according to which Brookfield’s acquisition of Asciano would lead to a substantial lessening of competition in markets for the supply of above-rail haulage services in Western Australia and Queensland. Should the deal go through in its current form, the Canadian firm would indeed own Asciano's Pacific National above-rail business, which operates on Brookfield's rail network in Western Australia. Pacific National also transports coal to Brookfield’s Darlymple Bay Coal Terminal.
The ACCC’s decision to commence market consultation on the revised undertakings is a positive development for Brookfield, since in November the Commission had rejected the Canadian firm’s behavioural undertakings without consulting the market, saying they were “unacceptable.”
While section 87b of Australia’s Competition and Consumer Act of 2010 allows a company to submit either behavioural or structural undertakings, the ACCC prefers the latter, usually in the form of divestitures. Behavioural undertakings, on the other hand, are commitments a potential acquirer makes not to engage in certain behaviour that would hurt competition.
“The Commission has not yet had the opportunity to consider these [structural] undertakings fully but considers that its views on the undertakings will benefit significantly from market feedback,” ACCC chairman Rod Sims said in the statement.
The deadline for comments on the proposed undertakings is 22 January 2016, with the Commission expecting to issue a final decision on 18 February, the same day it is set to decide on a non-binding proposal put forth by a consortium led by Australian logistics firm Qube Holdings that also includes New York-based fund manager Global Infrastructure Partners (GIP) and the Canada Pension Plan Investment Board (CPPIB).
“It should be noted that both the Brookfield and Qube decision dates are only indicative and may change,” the ACCC said.
While Brookfield – along with its partners, the British Columbia Investment Management Corporation and Singapore’s sovereign wealth fund GIC – had no competition when it first announced its plans to acquire the Sydney-based port operator in August, its plans were complicated when the Qube-led consortium emerged as a rival, acquiring a 19.99 percent stake in Asciano.
Since then, the pursuit of the Sydney-based company has grown increasingly competitive. While Asciano’s shareholders have just one formal proposal to consider at the moment – that of Brookfield – the Qube consortium has been carrying out its own due diligence of Asciano, which could lead to a second binding proposal being put fort for Asciano shareholders to choose from.
While Qube's indicative offer of A$9.25 (€6.09; $6.62) per share is only slightly higher in value than Brookfield's offer of A$9.22 per share, it faces much less of a regulatory hurdle since Asciano would be carved out among the three partners, with GIP and CPPIB acquiring Pacific National and Qube acquiring the container terminal business of Patrick T&L.
Qube would not acquire the interest in the Australian Container Freight Services (ACFS) joint venture and only a 50 percent interest in the Bulk & Automotive Port Services' (BAPS) Australian Amalgamated Terminals (AAT) joint venture. BAPS' remaining 50 percent interest and the ACFS interest would be sold.