Will the ACCC reject Brookfield’s $9 billion Asciano Ltd deal?

This morning, Asciano Ltd (ASX: AIO) shareholders have awoken to news that the Australian Competition and Consumer Commission (ACCC) will not accept Brookfield Infrastructure Partners’ proposed undertakings in relation to its $9 billion bid for the rail and port operator.

The ACCC said it “had decided not to accept undertakings offered by Brookfield Infrastructure Partners LP (Brookfield) in relation to its proposed acquisition of Asciano Limited (ASX: AIO) (Asciano).”

“While the ACCC does not generally make public its decision whether or not to consult on proposed undertakings, we considered it important to do so in light of the recent media reports that Brookfield has proposed long-term behavioural undertakings to the ACCC,” ACCC Chairman Rod Sims said.

Although the decision is not final, Mr Sims said the regulator was concerned about the possible vertical integration of the combined business in West Australia and Queensland.

 “The undertakings seek to address potential issues arising from the vertical integration of above and below rail assets in West Australia and the integration of port and rail assets in Queensland.” Mr Sims said: “After detailed consideration, the ACCC has concluded that the undertakings are not acceptable, and accordingly we will not be conducting third party consultation on the undertakings.”

The ACCC expects to have made its final decision by 17 December 2015 and is currently assessing a large number of submissions from the industry.

However, it added: “The ACCC will only consult on proposed undertakings if the ACCC considers that the undertakings are capable of being enforced and have the potential to adequately address competition concerns arising from the acquisition. The ACCC considers that the proposed undertakings offered by Brookfield do not meet these criteria.”

This will be welcome news to Qube Holdings Ltd (ASX: QUB), which has built a blocking stake in Asciano. It formed a partnership with foreign parties to make its own offer to Asciano shareholders and will seek to split up the business.

Yesterday, Qube told the ASX that its ‘consortium’, which includes Global Infrastructure Partners and Canada Pension Plan Investment Board, lodged a formal submission to the ACCC regarding its proposed acquisition of Asciano.

In regards to the ACCC, Qube said: “The Consortium remains of the view that the proposed transaction will have no adverse effects on competition in the container, automotive or other logistics supply chains or for freight rail service.”

Foolish takeaway

In early morning trading, shares of Qube were riding 2.6% higher while Asciano was 0.17% higher. Over on the New York Stock Exchange, Brookfield shares closed 1.96% lower.

While the ACCC may indeed clear the Brookfield deal, personally I think there is a meaningful regulatory risk that it may not proceed. Luckily for Asciano shareholders, Qube and its partners are also in the running to acquire the company’s shares.

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Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned.

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Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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