Diversified infrastructure and utilities-owner Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) has opened its wallet yet again with the intent to acquire Australian ports and rail operator Asciano Ltd. This is its third major acquisition over the last year and will certainly bolster its position as the leading global infrastructure play if it goes ahead, making it a desirable core holding in any portfolio.
Now what?
Brookfield Infrastructure has declared that it is actively seeking acquisitions. It intends to utilize the massive war chest it has built up, which held $3 billion in liquidity at the end of April this year, to make further acquisitions.
It appears that Australian logistics company Asciano is to be Brookfield’s next acquisition. Brookfield made a $6.8 billion takeover offer for one of Australia’s largest ports’ operators. Asciano also operates an extensive transcontinental rail network that transports a range of commodities and other freight. This transaction comes on the back of a string of recent acquisitions. These include the recent purchase of beleaguered natural storage provider Niska Gas Storage Partners LLC for US$912 million, and an interest in France’s largest communications tower operator TDF for $500 million.
The addition of Asciano to Brookfield’s portfolio makes sense because Asciano’s assets align with its existing operations in Australia. It already operates the sole freight rail network in the southwestern part of Western Australia and a regulated coal terminal in northeastern Australia. This terminal is a regulated asset that provides steady guaranteed cash flows and handles 20% of all of Australia’s global seaborne metallurgical coal exports.
The potential acquisition of Asciano fits well with these assets because of Asciano’s northeastern coal haulage business as well as its port and stevedoring operations in the region.
More importantly, the majority of Asciano’s assets operate in heavily regulated industries that are oligopolistic, where it is generally the dominant party. This, along with steep barriers to entry, helps to protect those assets’ competitive advantage and their earnings.
Asciano is also well positioned to benefit from the impending cyclical upturn in global economic activity because, unlike many other companies in its industry, it has invested heavily in its operations in an accretive way. These assets are also extremely attractive for Brookfield because of Australia’s transparent regulatory environment and devalued currency that has fallen by around 18% against the U.S. dollar over the last year.
So what?
While there is no guarantee that the transaction will be completed, it represents an opportunity for yet another accretive acquisition that can only cement Brookfield’s position as a leading global infrastructure play. It will also leave it well positioned to benefit from the growing global demand for transportation and logistics infrastructure as well as the much-anticipated upturn in global economic activity.
Over time, this acquisition should significantly boost Brookfield’s earnings. Patient investors will continue to be rewarded by its sustainable and juicy 5% yield while they wait for this to occur.
