Asciano’s $8.9 billion bid gone? Yesterday’s move by the competition regulator, the ACCC, to call for further submissions on some important competition issues in the $8.9 billion bid for the rail and ports group by Brookfield Infrastructure — a curious Canadian/American/Bermudian company — has pushed the takeover close to failing. Thanks to a string of complaints from farmers in Western Australia and Queensland, coal mining companies and others, the bid is in real trouble. In a statement yesterday, the ACCC claimed a successful takeover could lead to a “substantial lessening of competition” for rail haulage services in Western Australia and Queensland. The bid has been delayed until January at the earliest, around two months behind the original schedule from the two companies.

The ACCC has received a large number of submissions expressing significant concerns about the impact that the proposed acquisition will have on grain transport/rail market structures in Western Australia and coal transport in Queensland as a result of the vertical integration that will arise between Brookfield and Asciano. “Many interested parties are concerned that the proposed acquisition is likely to lead to a substantial lessening of competition,” the Commission said yesterday. And ACCC chair Rod Sims said, “We have had concerns by people who have expressed issues with vertical integration. That’s obviously the main issue that we’ll be dealing with.”

The WA Farmers group, and users of the Darlrymple Bay export coal terminal in Queensland have raised concerns over the proposed takeover,  and the nation’s biggest grain exporter, the WA-based CBH Group, has claimed Brookfield is “ruthlessly driven by the extraction of infrastructure profits”. The ACCC has invited further submissions by November 4 and expects to make a final decision on December 17. Clearly it doesn’t pay to upset farmers. — Glenn Dyer

Chasing the Bermuda Triangle. But what is Brookfield Infrastructure, the bidder for Asciano? Assume you are a shareholder in Asciano, the rail and port group under offer from Brookfield with that $8.9 billion paper and cash offer and the firm your company has hired to check if the bid is “fair and reasonable” recommends that it is “fair and reasonable”, but leaves you wondering if the bidding company is the corporate equivalent of a “black box” or the Bermuda Triangle. Asciano hired Grant Samuel, the “go-to” firm for the independent experts reports, for the offer from Brookfield. Grant Samuel gives the bid the thumbs up, but when you like to read deep into these sorts of documents and eventually reach pages 121 to 124, you find, much to your amazement, that that recommendation should really have been qualified … — Glenn Dyer

Listen to the warnings. Grant Samuel warns Asciano shareholders: that Brookfield Infrastructure’s distributions would not be franked, unlike dividends now paid by Asciano, (so why hold the Brookfield paper to be issued in the bid); that the group was more highly leveraged than Asciano; that its units were less liquid that Asciano’s shares; and that its more complicated legal and governance structures could be “disadvantageous”.

“The disadvantages are not insignificant, particularly the governance issues, but in Grant Samuel’s opinion they do not outweigh the advantages or impinge on the fairness of the proposal,” Grant Samuel said. “Externally managed investment vehicles have generally been out of favour with Australian investors since the global financial crisis.” Babcock and Brown comes to mind as the perfect example of why external managers are on the nose in Australia. Run for the hills? — Glenn Dyer

Weak governance. And then there were these points from the report — Brookfield Infrastructure’s financial statements are complex and could be difficult to interpret. “The complexity, transparency levels, accounting treatments and other aspects of Brookfield Infrastructure (and the broader Brookfield group) have been subject to some external criticism.” As well, Brookfield Infrastructure has no staff of its own and is controlled and is externally managed by Canada’s Brookfield Asset Management. And holders of Brookfield’s Infrastructure’s Australian units will have no control over the running of Brookfield Asset Management (the parent of Infrastructure) and no rights to vote directly at Brookfield Infrastructure’s general meetings. So, on that basis, why is it fair and reasonable to accept a takeover offer that is partly made up of securities (units) that look all but useless? Asciano holders might try for all cash payment, but that will be scaled back and the Brookfield paper will be issued to top up the price. Around a quarter of the offer price consists of this paper which has no real rights except an unfranked distribution. — Glenn Dyer

Peter Fray

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