While lawyers differed on the potential remedies available to Brookfield Infrastructure Partners [NYSE: BIP] following the statement of issues (SOI) from Australia’s ACCC competition watchdog over its proposed acquisition of Asciano [ASX: AIO], ACCC chairman Rod Sims said the ACCC“will review carefully and with an open mind whatever is put to us. The next steps are up to others.”
He said the ACCC has some concerns that existing access regimes will suffice and added that the SOI can be considered a red light. However, it is a separate issue from the regulation of monopoly infrastructure assets, he said.
Brookfield, which has already offered the ACCC behavioural undertakings, is understood to be confident that it can provide additional behaviouralundertakings, in particular with regard to the Pacific National rail on the East-West corridor, which it believes to be the ACCC’s main problem. It is also noted that any divestment of this asset is not practical as it would make the rail network more prone to accidents.
A Brookfield spokesperson said the management remains confident that all concerns identified by ACCC can be fully addressed through a combination of the existing regulatory frameworks and commitments given by Brookfield, which would be consistent with previous ACCC clearances in similar circumstances.
Earlier Thursday the ACCC said it is “concerned that the vertical integration will lead to a substantial lessening of competition in related markets for the supply of above rail haulage services in WA [Western Australia] and Queensland” and said that state access regimes are in place, which cover Brookfield Rail and the company’s Dalrymple Bay Coal Terminal (DBCT) in central Queensland. It indicated, however, that the latter may not be enough.
“While there are access regimes in place for these businesses, they are primarily intended to deal with market failure issues that are inherent for any monopoly infrastructure. They do not currently need to address the competition issues that arise from vertical integration,” the ACCC said.
Lawyers say they have been taken aback at the stridency of the SOI, but differed on the potential remedies available. Two lawyers believedbehavioural undertakings would not solve the vertical integration problem as the SOI seemed to them to rule out undertakings around access agreements.
This means structural undertakings such as selling all or part of Pacific National or selling its leases over the DBCT and WA rail network may be necessary. “An alternative access scenario seems blocked," one of the lawyers said.
Asciano’s Pacific National freight transport unit operates on Brookfield’s rail network in WA and transports coal to the DBCT.
A third lawyer believes the SOI is serious in that it reflects that the current regulatory regime is not designed for a merged Brookfield/Ascianoentity. The lawyer argued, though, that there is scope for Brookfield to provide more meaningful undertakings that the ACCC would be satisfied could be enforced - a view Asciano is understood to share. The lawyer highlighted ring fencing in WA and non-discriminatory behaviour.
It is estimated that hedge funds hold less than 5% of the Asciano shares outstanding.
An Asciano spokesperson said on Thursday the company will consider the ACCC’s decision and may push back a shareholder vote on the scheme set for mid-November. If that happens, it would not be possible to implement the scheme before January 2016.
Asciano shares were down 7.85% at AUD 7.86 late afternoon Thursday.