ACCC elevates concerns on Aurizon’s (ASX:AZJ) AU$2.35B OneRail acquisition

Highlights

• Aurizon had proposed to acquire One Rail for AU$2.35 billion in October 2021.
• ACCC has raised competition concerns with Aurizon’s proposed acquisition.
• ACCC is seeking public comment on the same and is expected to release its final decision by 14 July 2022.

Rail network services provider, Aurizon Holdings Limited (ASX:AZJ) had inked an agreement on 22 October 2021 with Macquarie Asset Management to acquire One Rail Australia (ORA).

The transaction was subject to three primary conditions – respective consents from South Australia government, Australasian Railway Corporation and the Australian Competition & Consumer Commission (ACCC). The first two consents have already been received. 

The ACCC started reviewing the proposed transaction on 7 December 2021 and today, has managed to list some preliminary competition concerns with the acquisition proposed by Aurizon, via issuing a statement.

Related article: Aurizon’s (ASX:AZJ) A$2.35B One Rail acquisition under ACCC scanner

Here are the preliminary competition concerns outlined by ACCC:

Decrease in competition – In NSW and QLD, the main suppliers of coal haulage are One Rail, Aurizon and Pacific National. With the acquisition of One Rail by Aurizon, the number of competitors in coal haulage supply will reduce from three to two. ACCC is concerned that the proposed acquisition might lessen competition.

Decrease in competition in regional markets – ACCC highlighted the concern that competition is likely to lessen in regional markets for rail haulage services supply for bulk commodities, not coal. Presently, the parties involved in the proposed acquisition do not deal with the other bulk commodities, but Aurizon shared its intent to grow the rail haulage business for non-coal bulk commodities.

Image source: © Tinabelle | Megapixl.com

Is Aurizon’s divesture effective – ACCC is not satisfied with Aurizon’s divestiture. To address the competition issue, the authority needs to be satisfied that the demerged business or new purchaser would be a stand-alone, effective and long-term competitor in the supply of rail haulage services in both coal and non-coal bulk commodities.

Financial arrangements proposed for new entity –  An important issue, as per ACCC, is whether the financial arrangements that Aurizon has proposed for the new entity, would affect the proposed demerged business’s ability to become an effective competitor. This also includes its proposed debt levels. It should be noted that Aurizon proposed to fund East Coast Rail with AU$500 million in underwritten bank debt. ACCC raised the concern that the financial arrangement proposed for the new entity is likely to affect its competitive ability.

In line with these issues, ACCC has asked for submissions from interest parties by 23 June 2022. By 14 July 2022, ACCC is expected to share its final decision on the proposed acquisition.

Meanwhile, as per the Aurizon’s statement made in October 2021, the company proposed to acquire One Rail for AU$2.35 billion. As a part of the proposed acquisition, the company had proposed a divestment undertaking that seeks to address the ACCC’s preliminary concerns. This undertaking intends to divest One Rail’s east coast business. This includes coal haulage operations in NSW and Queensland. This undertaking would let Aurizon to sell the business either by a trade sale or demerging it as a new separate ASX-listed entity.

About Aurizon and One Rail

Aurizon is an ASX-listed transportation company that offers rail network and rail haulage services. The company claims that it is the largest rail freight operator in Australia for bulk trail and coal haulage services.

One Rail offers rail network and haulage services. Currently, the services are being provided on the Adelaide to Darwin corridor along with NSW, Queensland and in South Australia.

Meanwhile, at 11:39 AM AEST, the shares of Aurizon were spotted trading 1.071% down at AU$4.155 apiece.

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