Australian regulator flags concerns about Brookfield's Asciano deal

While the Australian Competition and Consumer Commission (ACCC) did not suggest it would seek to block the deal outright, its intervention raised the prospect that certain assets are being excluded from the deal. Rod Sims, ACCC chairman, said in a statement that there were concerns that vertical integration will lead to reduced competition in the Western Australia and Queensland rail haulage services markets.

The acquisition, announced in August, would give Brookfield ownership of Asciano's Pacific National rail business. This business transports coal to Brookfield's Dalrymple Bay Coal Terminal via a rail network that is also controlled by the asset manager.

Asciano's stock closed at A$8.53 on October 14. As of mid-afternoon trading on October 16, it was hovering above the A$7.50 mark. Brookfield is offering A$6.94 per share in cash plus 0.0387 Brookfield Infrastructure units for each Asciano share. This translates into an implied value of A$9.15 per Asciano share, giving the business an enterprise valuation of approximately A$12 billion.

Brookfield Infrastructure controls 55% of the acquisition vehicle, with Brookfield-sponsored and managed private funds holding 23% and two institutional partners holding 11% apiece.

The deal will be financed with an acquisition debt facility of A$1.9 billion and a new Brookfield Infrastructure debt facility of $1 billion, while Asciano's existing debt facilities will remain in place. Brookfield Asset Management will also subscribe to $250 million worth of Brookfield Infrastructure units.

Asciano was formed through a restructuring of Toll Group's assets in 2006. It is Australia's only integrated rail, ports, stevedoring and landslide logistics business, with 8,000 employees across Australia and New Zealand. It posted revenue of A$3.84 billion in 2015, down 3.9% year-on-year, while underlying EBITDA and net profit came to A$1.14 billion and A$359.6 million, up 8.6% and 41.4%, respectively.

Brookfield has more than $200 billion in assets under management globally, focusing on infrastructure, renewable energy, private equity and real estate. Earlier this year, it teamed up with Macquarie Capital to acquire the Australia business of US-based oil and gas exploration and production company Apache for $2.1 billion.

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