Shares in port and rail operator Asciano Ltd (ASX: AIO) slumped to a three-month low as investors rushed for the exits on fear that Brookfield Infrastructure's $8.9 billion takeover bid would fall through.
The stock sank 8.1% to $7.84 in late afternoon trade after the Australian Competition and Consumer Commission (ACCC) flagged concerns about how the merger would impact negatively on other rail and port users.
The competition watchdog has raised a red flag on other mergers before, but the parties involved usually manage to address the issues to eventually win the backing of the ACCC.
But things may not be as straightforward with the Asciano deal as Brookfield will become the owner instead of customer of interstate rail company Pacific National.
Brookfield already owns a 5,500 kilometre rail network in Western Australia and farmers and other rail and port users have voiced concern about Brookfield having such a stranglehold on the infrastructure.
The ACCC chairman Rod Sims said in statement that competition issues can be particularly difficult to address when "key infrastructure assets of a technical nature" are involved and he indicated that concessions made by Brookfield to ensure open access to the rail and port network may not be enough to ensure an even playing field.
I don't like the odds of the deal going through even though Brookfield can appeal an adverse decision by the ACCC through the courts of Australian Competition Tribunal.
Infrastructure and logistics companies look attractive from a merger and acquisition perspective and you only need to recall Toll Holdings Ltd fell to Japan Post for a hefty $5.1 billion price tag to see evidence of this.
Don't forget that fellow rail operator Aurizon Holdings Ltd (ASX: AZJ) is also seen as a takeover target.
But the Asciano deal should remind investors why they shouldn't buy a stock primarily for its takeover appeal as that is akin to rolling a dice.
While it isn't game over for the Brookfield-Asciano merger as the ACCC is delaying its final decision until December 17 to allow affected parties more time to make submissions to the watchdog, the question is what should Asciano shareholders do now.
The good news is that Asciano stock actually still looks good value even though its stock is 35% higher over the past year even with today's big fall.
Asciano is trading on a 2016-17 consensus price-earnings multiple of 16.5x and that is on the cheap side for a company that owns strategic assets that cannot be easily replaced.
Buy Asciano for its fundamentals and not for its takeover appeal.
