July 1, 2015 / 1:03 AM / 4 years ago

Canada's Brookfield makes $6.8 billion play for Australian freight major Asciano

SYDNEY (Reuters) - Canada’s Brookfield Asset Management (BAMa.TO) has approached Australia’s Asciano Ltd AIO.AX with a $6.8 billion takeover bid, but uncertainty about whether the deal would go through capped gains in the stock price of the rail freight firm.

If successful, the deal would be the seventh-largest inbound takeover of an Australian company, and would follow the A$6.5 billion ($5 billion) purchase of Asciano’s former parent company, Toll Holdings, by Japan Post this year, underscoring huge international appetite for Australia’s infrastructure.

Asciano said it was now in exclusive talks with Brookfield, Canada’s largest alternative asset management company, over its indicative cash and scrip bid of A$9.05 per share that values the company at A$8.8 billion, but cautioned that the discussions were at an early stage. The offer price represents a 36 percent premium to the stock’s Tuesday close.

The stock hit six-year highs earlier on Wednesday, but pared some gains to end 17 percent higher at A$7.77. That, however, was still about 16 percent lower than the proposed bid price, highlighting concerns about the deal’s prospects.

John Guadagnuolo, investment manager for Antares Capital, one of Asciano’s largest shareholders with a stake of more than 2 percent, said Brookfield’s bid fails to take into account expectations that the company would be increasing shareholder returns after a period of heavy capital spending.

“History tells you companies that are coming out of large periods of capital expenditure produce a lot of cash for their investors, and that’s one of the key reasons we’ve invested,” he said.

Although haulage volumes in Australia have been hit by the end of a two-decade mining boom, Asciano’s A$3 billion equipment overhaul has positioned it well for growth, analysts say. The company increased its interim dividend by 44 percent in February.

Brookfield’s June 26 proposal was made through its listed fund Brookfield Infrastructure Partners (BIP.N). In a statement, Brookfield Infrastructure said talks with Asciano were ongoing and that it did not intend to provide further updates until appropriate.

Brookfield has a 5,500 kilometer (3,420 miles) rail network in the state of Western Australia. This year, it was part of a consortium that bought oil and gas firm Apache Corp’s (APA.N) exploration and production businesses in Australia.

Reporting by Byron Kaye; Editing by Edwina Gibbs

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