The Brookfield-Asciano Deal

Last week, I initiated a position in Brookfield Infrastructure Partners LP (BIP) (BIP.UN.TO). Its a company that I’ve been watching for a while and was waiting for a good time to jump in. That moment showed up when Brookfield announced that it had reached a deal to acquire the Australian company Asciano Ltd, a rail and port logistics company, for US$6.6B. This deal will give BIP a 55% stake in the company. The remaining stake is divided as: 23% going to Brookfield Asset Management (BAM), BIP’s parent company; 11% stake going to British Columbia Investment Management Corp; – a Victoria, BC-based pension plan; and 11% of the stake going to the Government of Singapore.

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Who owns Asciano Ltd after this deal

As blogger Freedom Thirty Five noted in his post last week, Australia and Canada share a lot of similarities. They are both resource rich economies that are facing financial headwinds due to the commodity market collapse. Both countries have a high standard of living, inflated housing market, similar currencies, etc. Canada’s largest trading partner is the US and Australia’s largest trading partner is China – current #1 and #2 economies of the world – who will eventually swap the #1 and #2 spots in the coming years. With a trading partner that big and other South Asian economies in the vicinity, investing in Australia is a great way to gain exposure to the emerging markets while staying invested in stable developed economies.

A Closer Look at Asciano Ltd

Asciano owns two main subsidiaries: Pacific National – Australia’s largest railroad company, and Patrick Corp – a logistics conglomerate with interests in shipping, rail and aviation, including a 62% shareholding in airline Virgin Blue. Asciano breaks their financial reporting into the following business segments: Pacific National, Terminals and Logistics, and Bulk & Automotive Port Services. The following charts from Apr 2015 Investor Update provide a great overview of the Asciano business.

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Screen Shot 2015-08-23 at 4.50.15 PM As is evident from the last chart – bulk of the revenue and earnings comes from the Pacific National railway company. As I have discussed in previous posts, railroads are a fantastic business and provide a great investment opportunity due to their wide economic moat. The number and value of goods may go up and down a bit based on the economic cycle – but unless we invent teleportation, shipping and transportation are an absolute necessity. I am a big fan of the sector and couldn’t be happier with this deal. With this purchase by Brookfield Infrastructure, I indirectly own Pacific National Railway – which is my second railroad company, after Canadian National Railway (CNR.TO) (CNI). Brookfield Infrastructure has indicated that this is only the beginning and stepping stone for more deals to expand their influence in this sector. My position is not big by any measure and I will be looking to add more shares in the coming months in this fantastic company.

Full Disclosure: Long BIP.UN.TO, CNR.TO. My full list of holdings is available here.

6 thoughts on “The Brookfield-Asciano Deal

  1. Thanks for the informative post R2R. I will add this company in the future for sure. I really like the growth story of the parent company BAM.A. BIP.UN pays a nice dividend and complements the BAM Family.
    Happy hunting and wish us the best. I bought 30 shares of CNR today at 71.06. I had to because I have been eyeing it for a couple years and I missed it last month at 71 so BAM! 🙂
    LOVE QUALITY!
    Cheers bud.

    • DH,
      Glad to have brought this to your attention. I really like the future prospects and the wide economic moat that the company provides. Good luck hunting.

      Awesome purchase of CNR at $71. I need to average down – waiting for some more cash to accumulate in that account before I pull that trigger. Cant go wrong with buying railroads at these prices…and CNR is the best of the breed.

      cheers
      R2R

    • Good to hear that you are a fellow shareholder, Mark. Really loving the prospects of the company that more I read about it. Definitely going to be adding to the position in the coming months when cash is available.

      cheers
      R2R

  2. Thanks for the mention. Nice charts. Owning companies in other countries through Canadian companies is more tax efficient than buying a foreign stock outright. Do you think teleportation technology is scientifically possible in this universe? I think it’s hard to say. Even if it’s possible maybe humans will never become smart enough to figure out how to make it work.

    • You are welcome, Liquid. Owning international companies thru Canadian companies makes sense tax-efficieny-wise, but I think owning Australian companies directly is not so bad – since we have a tax treaty with them and we can own Australian ADR stocks in RRSP/TFSA accounts without any tax implications.

      Never say never about teleportation. A 100 years ago, flying was new and cellphone usage and information tech was just a story in the SciFi world. Maybe we will figure things out about teleportation. I think they are experimenting and have found some success in transporting small particles over short distances…maybe one day we will be able to move things around in bulk over long distance.

      cheers
      R2R

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