Brookfield and Qube bat on in search of Asciano solution


ACCC in the thick of takeover action as rivals seek favour with regulator and shareholders

Brookfield and Qube bat on in search of Asciano solution
Rod Sims indicates Brookfield’s behavioural undertakings need more work.

Brookfield Infrastructure Partners will continue to explore ways to seal its Asciano takeover bid, despite the nation’s competition regulator’s strong initial rejection of it.

The Australian Competition and Consumer Commission (ACCC) dashed Canadian firm Brookfield’s early hopes without conducting industry consultation, indicating its undertakings failed to make it over one of the regulator’s lower hurdles.

But that the ACCC is yet to reject the deal outright has given the bidder hope.

"Notwithstanding this interim decision, the ACCC has expressly indicated that it has not formed a final view on the transaction, which it has reserved until December 17, 2015," Brookfield says.

"Brookfield Infrastructure, in consultation with Asciano Limited, is assessing the ACCC’s announcement and evaluating the variety of available alternatives for addressing those issues that the ACCC has determined cannot be resolved through undertakings relating to conduct alone, including the provision of new structural undertakings.

"Brookfield Infrastructure remains committed to working cooperatively with the ACCC in seeking to secure pre-clearance of its proposed transaction, which is the only proposal capable of acceptance by Asciano’s shareholders."

Asciano’s board continues with its stated position of backing the bid until a "superior proposal capable of acceptance" emerges.

With the Qube Holdings-led counterbid on the table, this offer appears to fall short in the board’s collective mind.

"Asciano will continue to work with Brookfield to address any remaining ACCC concerns," it confirms.

Qube’s alliance with Global Infrastructure Management, LLC (GIP) and Canada Pension Plan Investment Board (CPPIB) has seen the ACCC promoted its "non-binding indicative proposal" for Asciano from a ‘monitoring’ assessment to ‘informal review’ status.

That bid would see Qube gain the Patrick Container Terminals business and the Asciano’s 50 per cent interest in Australian Amalgamated Terminals while the Canadian firms would get the rest of the company, including rail concern Pacific National.

The Qube consortium has lodged its bid submission formally but confidentially with the regulator.

"The consortium remains of the view that the proposed transaction will have no adverse effects on competition in the container, automotive or other logistics supply chains or for freight rail services," is all Qube will say on the submission.

But it calls on Asciano shareholders to take no action on the Brookfield offer.

"In particular, Asciano shareholders should note that by accepting the Brookfield offer, even while it remains conditional, they could be prevented from accepting any alternative, superior proposal put forward by the consortium," it says.

The ACCC will announce its decision, which, like the Brookfield determination, may or may not be a final decision, on February 11, with submissions to close on December 9.

On Asciano, it underlined vertical integration as major concern.

"While the ACCC does not generally make public its decision whether or not to consult on proposed undertakings, we considered it important to do so in light of the recent media reports that Brookfield has proposed long-term behavioural undertakings to the ACCC," ACCC chairman Rod Sims says.

"The undertakings seek to address potential issues arising from the vertical integration of above and below rail assets in West Australia and the integration of port and rail assets in Queensland.

"After detailed consideration, the ACCC has concluded that the undertakings are not acceptable, and accordingly we will not be conducting third party consultation on the undertakings."

In deciding that the undertakings are not acceptable, the ACCC highlights factors including:

whether long term behavioural section 87B undertakings are capable of addressing the scale and complexity of vertical integration of Brookfield’s monopoly infrastructure assets with Asciano’s above rail operations

the difficulty and risks of behavioural undertaking obligations that are clear, comprehensive and rigorous enough to address the competition issues arising from this scale of vertical integration, but that are flexible enough to allow Brookfield to engage in legitimate operational activities

whether it is appropriate for the proposed undertakings to rely, in part, on Western Australian and Queensland based access regimes, which are subject to change and, in some cases, have been criticised for their lack of effectiveness in dealing with key issues such as vertical integration

feedback from market participants about the inability of behavioural undertakings to address the competition issues that have been identified.

"The ACCC’s review of the proposed acquisition continues and we are assessing the large volume of submissions from industry participants and the parties," Sims says.

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