The Aurizon Holdings Ltd (ASX: AZJ) share price is edging higher on Friday morning.
At the time of writing, the rail freight operator’s shares are up slightly to $3.92.
Why is the Aurizon share price rising?
The Aurizon share price is rising this morning after it announced a major acquisition.
According to the release, Aurizon has signed an agreement with Macquarie Group Ltd (ASX: MQG) subsidiary Macquarie Asset Management to acquire One Rail Australia (ORA) for $2.35 billion.
ORA comprises bulk rail haulage and general freight assets in South Australia and the Northern Territory (the 2,200km Tarcoola-to-Darwin railway line) and a haulage business in New South Wales and Queensland.
However, Aurizon plans to divest ORA’s New South Wales and Queensland East Coast Rail business through a demerger or a trade sale, whichever creates greater value for Aurizon shareholders. Until that time, the East Coast Rail business will be operated independently of the Aurizon with a separate CEO and management team. This is to address potential competition concerns from regulators.
“A strong, profitable business”
The release notes that One Rail Australia is a strong, profitable business with aggregate estimated earnings before interest, tax, depreciation and amortisation (EBITDA) of $220 million for calendar year 2021. This comprises Bulk EBITDA of ~$80 million and East Coast Rail EBITDA of ~$140 million.
The purchase remains subject to several customary conditions precedent and regulatory and consent conditions. This includes clearance from the Australian Competition and Consumer Commission (ACCC).
Aurizon’s Managing Director and CEO, Andrew Harding, believes the transaction is a unique opportunity to grow its business and create value for shareholders.
He commented: “The One Rail acquisition is highly strategic and transformative for Aurizon. It is fully aligned with Aurizon’s strategy to grow our Bulk freight business into new markets and new geographies in Australia.”
“At our Investor Strategy Day in June, we detailed our aspiration to double our earnings in the Bulk business over the coming decade. The One Rail acquisition delivers a step change for Aurizon Bulk as a new entrant in the SA and NT region, and supports the ongoing growth of non-coal revenue in the Aurizon portfolio. Upon completion of the transaction, with the integration of One Rail bulk and divestment of ECR, the Bulk share of Aurizon’s haulage revenue will represent around 40%.”
Mr Harding also highlights that the transaction gives the company opportunities to gain exposure to new economy metals, among other commodities.
He explained: “The ORA bulk infrastructure and operations in SA and NT provide customers with a safe, efficient and effective pathway to market for numerous existing commodities and growth opportunities in base metals, agriculture, iron ore and for new economy metals such as manganese and copper.”
The Aurizon share price is trading broadly flat in 2021.