COMPETITION watchdog chairman Rod Sims has denied he is opposed to vertical integration after turning down a plan by Brookfield Infrastructure to tackle regulatory concerns with its $9 billion Asciano takeover.
"It's a straight down-the-line competition issue," Mr Sims told Fairfax Media.
"We're not just here as a rubber stamp, we're here to do a job.
"The [Competition] Act says do not allow mergers that have the effect of, or likely effect of, substantially lessening competition."
Brookfield's attempt to gain control of Asciano was dealt another blow on Thursday after the Australian Competition and Consumer Commission said it would not accept the so-called "behavioural undertakings" provided by Brookfield to address the regulator's concerns over the combination of the groups' rail and port assets.
As reported in The Australian Financial Review on Thursday, Brookfield had hoped to allay the ACCC's fears over the vertical integration resulting from the merger of its rail tracks with Asciano's Pacific National rail haulage business in Western Australia by accepting tougher scrutiny from regulators and transferring control of trains that use its tracks to an independent company.
Brookfield has a 5500-kilometre freight rail network in WA, which is used by Pacific National, as well as the Dalrymple Bay Coal Terminal in Queensland, which is also used by the rail haulage group.
But Mr Sims said though the ACCC had approved some mergers causing the vertical integration of assets, the relationship between Brookfield's and Asciano's rail and ports businesses in Western Australia and Queensland was "complex" and Brookfield could not guarantee there would be no abuse of market power.
"There is so much potential for discrimination and reduction in competition that the behavioural undertaking to try and solve that has to be very complex - more complex than is possible to allow [Brookfield] to commercially run their business," Mr Sims said.
The ACCC also considered whether it was appropriate for Brookfield's undertakings to rely on WA and Queensland's regulatory regimes, but said the regimes were vulnerable to change and had been "criticised for their lack of effectiveness in dealing with key issues such as vertical integration".
Brookfield said it would consider alternatives for addressing the ACCC's concerns, including "new structural undertakings".
"Brookfield remains committed to working co-operatively with the ACCC in seeking to secure pre-clearance of its proposed transaction," the infrastructure group said.
Structural undertakings involve the sale of assets to address competition concerns.
Analysts have suggested that Brookfield could sell its WA rail network and Pacific National's haulage business in Queensland to get ACCC approval.
The ACCC, which would continue reviewing Brookfield's takeover bid, had not yet received any structural undertakings from Brookfield but preferred structural solutions to behavioural solutions, Mr Sims said.
"It's not often that we accept behavioural undertakings," he said.
If Brookfield submitted complicated structural undertakings close to the ACCC's December 17 deadline for reviewing the takeover bid, the regulator's final decision could be delayed, Mr Sims said.
"We haven't reached a final view on Brookfield, we will keep working it through," he said.
Asciano said it would work with Brookfield to address the ACCC's concerns, and continued to recommend Brookfield's takeover bid.
The ACCC has started a separate review of a rival $9 billion takeover proposal from a consortium led by logistics group Qube, which has begun due diligence on Asciano's assets and expects to make a formal bid in mid-December.
The ACCC will rule on the Qube's consortium's proposal, which involves breaking up Asciano's port and rail businesses, on February 11.
Qube chief executive Maurice James said on Tuesday that he did not believe there were any "material competition issues" with the consortium's proposal.
Brookfield and the Qube consortium each own 19.99 per cent of Asciano.
Qube chairman Chris Corrigan said on Tuesday that he did not believe Brookfield could prevent his consortium proceeding with a takeover, and he expected the Canadian group would negotiate on a break-up of assets if the consortium's bid was successful.
However, Brookfield told its investors in early November it would not support a break-up of Asciano and was prepared to hold its stake over the long term if its takeover bid did not succeed.
Both Brookfield and Qube are offering Asciano investors a mix of cash and stock. Asciano's shares closed down 7¢ at $8.88 on Thursday.
