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Climate-driven train M&A goes off the rails

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An Aurizon coal train travels through the countryside in Muswellbrook, north of Sydney, Australia, April 9, 2017.

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MELBOURNE, Oct 22 (Reuters Breakingviews) - When the picks-and-shovels providers start departing, it’s usually a bad sign. That’s not the case with Aurizon’s (AZJ.AX) attempt to extricate itself from coal. The A$7.2 billion ($5.4 billion) Australian goods-train operator has unveiled two deals to reduce its reliance on transporting the fossil fuel read more .

The first is an agreed A$2.35 billion purchase of One Rail Australia, which will increase the amount Aurizon’s so-called bulk division ships of commodities crucial to the global energy transition like copper and rare earths. Boss Andrew Harding is paying 10.5 times the target’s EBITDA, a lower multiple than plenty of recent deals. Second is a plan to offload a coal-freight unit, East Coast Rail.

Trouble is, the net result only reduces coal revenue by around 7 percentage points to at least 50%. That comes at the expense of a couple of percentage points off the EBITDA margin, and takes the net debt load to 3.1 times EBITDA at the end of June, a fivefold increase. Meanwhile, Harding reckons bulk earnings will need a decade to double. That’s one slow-moving climate M&A train. (By Antony Currie)

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Editing by Una Galani and Karen Kwok

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