• ACCC says effectiveness of rail regime could be relevant to merger assessment
  • Grain growers, Asciano union call for government to fix rail oversight
  • Deal’s scrip component of increasing interest to shareholders

Brookfield Infrastructure’s [NYSE: BIP] proposed AUD 9.15 per share scheme with Asciano [ASX: AIO] is among the top items on the agenda in regular talks on Monday between grain growers and government, including Agriculture minister Barnaby Joyce, said Grain Producers Australia chairman Andrew Weidemann.

Australia’s ACCC competition watchdog has set 15 October as the provisional date for its decision on the proposal, which may be either final or see the release of a statement of issues (SOI). This news service has reported that while the parties are not concerned about the regulator blocking the deal, an SOI is anticipated and Brookfield is amenable to possible undertakings should they be required to gain ACCC approval.

WAFarmers, grain growers coop CBH and rail operator Aurizon [ASX: AZJ] have submitted concerns to the ACCC relating to Brookfield’s West Australian assets, where its Dalrymple Bay Coal Terminal and Western Australian rail networks will be combined with Asciano's Pacific National rail haulage services.

The GPA has not made a submission on the deal to the ACCC but has written and spoken to the ACCC calling for the ACCC to have ongoing, active oversight of Australia’s rail freight networks, supported by an appropriate regulatory framework, if it allows the scheme to proceed.Weidemann explains that these concerns extend to any sales or Melbourne and Darwin ports. The GPA’s statement notes grain growers in Western Australia have said rail assets have declined through insufficient maintenance while they pay more in charges to use the network. It is this regulatory environment that the GPA wants improved.

Rail regime could be relevant

ACCC chair Rod Sims said that in general, there needs to be a causal link between the effect of a merger and the regulatory issues being raised by the market for the ACCC to have regard to complaints.

In the case of Asciano/Brookfield, Sims says the effectiveness of the regime could be relevant to the merger assessment.

Again explaining generally, he added that where market participants claim the merger raises no issues but that the regulatory regime affecting the industry needs fixing the ACCC would not concern itself with addressing the perceived problems with the regulatory regime under the guise of addressing the competition effect of the merger. “That is not to say we might not advocate for better regulation more generally, for example we have done so recently with port privatisations, however we will not link calls for reform to a specific merger.”

‘Dog’s breakfast’

Stewart Prins, executive officer of Asciano’s largest union the Rail, Tram and Bus Union (RTBU), said in its submissions the RTBU is not opposing the scheme per se but calls on government to fix the “dog’s breakfast” of rail access regimes that differ across states before allowing further mergers in the sector, including Brookfield’s proposed scheme which exposes significant inconsistencies in the way access to below rail infrastructure is managed across jurisdictions.

Prins previously told this news service that the RTBU was undecided but will likely focus on whether Brookfield is looking to drive value through efficiencies or through synergies. Prins also said at the time that if Brookfield is looking strategically at how it can match its existing below rail and port assets with above rail operations, and create value out of those synergies, then the merger could work and even positively set up Pacific National as a bigger integrated logistics player.

The Economic Regulation Authority (ERA WA) is responsible for administering the Railways Access Code and is currently reviewing the Code. The ERA will consider any concerns raised by interested parties about the potential impact of the Asciano deal only if it relates to the adequacy of the Code, CEO of ERA Greg Watkinson said.

WAFarmers, an affiliate of the National Farmers Federation, has submitted the ACCC should “deny the proposed acquisition as the monopolistic nature of the infrastructure involved will lead to anti-competitive behavior in the already turbulent rail freight network in WA".

WAFarmers claims the deal will lead to the largest interstate rail operator in Western Australia no longer being a customer of Brookfield, but part of their operations. And that Pacific National would no longer be a competing customer and would no longer be subject to the access fee negotiation process that happens with other access seekers.

The NFF, to which WAFarmers is affiliated, does not call for the ACCC to block the deal but cautions the ACCC to be vigilant about transparency and fair competition in the market, this news service reported. It noted that the ACCC needs to familiarise itself with the fact that a few players have control.

Scrip component

Meanwhile it was said that the scrip component of the deal is becoming of increasing interest to shareholders as they focus on Brookfield’s plans and potential and interest could end up close to the allotted 25% cash component. This news service has reported that two majorAsciano shareholders expected more demand for the cash component than the 75% maximum allocation.

In August Asciano and Brookfield announced a "mix-and-match" scheme mechanism of AUD 6.94 in cash and 0.0387 Brookfield Infrastructure ("BIP Units"). Asciano traded at traded at AUD 8.50 on Tuesday.