G&W eyes a sale of global operations to Brookfield

 
  james.au Chief Commissioner

Location: Sydney, NSW
And this I believe is one of the problems with the network in the central of Australia.  There needs to be the ability for smaller or more aggressive operators to get access to network for service delivery.  The same could be said for the many lines GWA have which do not carry traffic.

If you want to grow the central australian business then you need competition against road on the rail network.  You also need a track owner who can build branch lines and industrial to service longer term projects in the way BHP/FMG/RIO etc do.  Rail would be even more competitive.

You've got to be careful with what exactly more operators will actually acheive.

The Northern Territory is not a large market, the economy is only one fifth of the size of North Queensland's and the NT population is the same as the Cairns regional population - at 244,000. In 2009 GWA had acheived 90% market share on the Adelaide to Darwin corridor, handling 800,000-tonnes of intermodal and 71,000-tonnes of bulk liquids, and doing so at ten to twenty percent less than the cost road. In 2017 tonnages were at 4.7-million tonnes.  

So additional operators will not be taking traffic off road, they'll be cutting into GWA's profit pie - which isn't huge, and all that for the sake of a perceived lack of competition. The Sturt Highway already represents competition for any disatisfied customers, and even more so, so does the Barkly/Landsborough/Warrego Corridor, which offers a far shorter transport route from the East Coast.
Sulla1
That is a fair point, and there is a risk that volumes are not sufficient to run more than one operator.  Though with now 4.7mt on the route, im not sure if it is a high or low risk?

But what if a lower freight rail rate leads to more work being possible?  Not that i think there is this case in the corridor (but I don't know there isnt either), but hypothetical lowering of freight rates might lead to entirely new business.  And what might freight rates do to goods brought into Darwin/NT from the south in terms of their overall price - again if the overall price of goods is lowered, what might that mean for the NT economy?  This is very much an academic question, and the transport cost might make a small portion of total cost of goods and so it could be irrelevant.

Overall though, the monopolist position that GWA holds there just doesn't feel right to me.

Ill make a new thread about this for discussion but the SA ESC is reviewing the arrangement as per its regular review schedule. Always an interesting read, especially the submissions from industry.

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  Sulla1 Chief Commissioner

And this I believe is one of the problems with the network in the central of Australia.  There needs to be the ability for smaller or more aggressive operators to get access to network for service delivery.  The same could be said for the many lines GWA have which do not carry traffic.

If you want to grow the central australian business then you need competition against road on the rail network.  You also need a track owner who can build branch lines and industrial to service longer term projects in the way BHP/FMG/RIO etc do.  Rail would be even more competitive.

You've got to be careful with what exactly more operators will actually acheive.

The Northern Territory is not a large market, the economy is only one fifth of the size of North Queensland's and the NT population is the same as the Cairns regional population - at 244,000. In 2009 GWA had acheived 90% market share on the Adelaide to Darwin corridor, handling 800,000-tonnes of intermodal and 71,000-tonnes of bulk liquids, and doing so at ten to twenty percent less than the cost road. In 2017 tonnages were at 4.7-million tonnes.  

So additional operators will not be taking traffic off road, they'll be cutting into GWA's profit pie - which isn't huge, and all that for the sake of a perceived lack of competition. The Sturt Highway already represents competition for any disatisfied customers, and even more so, so does the Barkly/Landsborough/Warrego Corridor, which offers a far shorter transport route from the East Coast.
That is a fair point, and there is a risk that volumes are not sufficient to run more than one operator.  Though with now 4.7mt on the route, im not sure if it is a high or low risk?

But what if a lower freight rail rate leads to more work being possible?  Not that i think there is this case in the corridor (but I don't know there isnt either), but hypothetical lowering of freight rates might lead to entirely new business.  And what might freight rates do to goods brought into Darwin/NT from the south in terms of their overall price - again if the overall price of goods is lowered, what might that mean for the NT economy?  This is very much an academic question, and the transport cost might make a small portion of total cost of goods and so it could be irrelevant.

Overall though, the monopolist position that GWA holds there just doesn't feel right to me.

Ill make a new thread about this for discussion but the SA ESC is reviewing the arrangement as per its regular review schedule. Always an interesting read, especially the submissions from industry.
james.au

It's possible lower freight rates may develop new business, but in the case of this corridor, with so much of the corridor's freight already on rail, it's hard to imagine what new business wouldn't default to using rail as it is anyway - there's already a pricing reason why customers aren't using road. My take on reducing freight rates in the end means less money for the rail freight business, and less money for the rail freight business generally ends up being less freight on rail as either infrastructure becomes less reliable or the rail freight operators seek out only the most profitable rail hauls.

The arrival of Open Access has conincided with very significant declines in regional rail freight in Victoria and Queensland, with a couple of regional success stories in New South Wales. During this same period of time GWA has won very significant gains against road on the Darwin corridor - as dangerous as a monopoly may be, there's reasonable evidence that Open Access doesn't always do much better.
  james.au Chief Commissioner

Location: Sydney, NSW
It's possible lower freight rates may develop new business, but in the case of this corridor, with so much of the corridor's freight already on rail, it's hard to imagine what new business wouldn't default to using rail as it is anyway - there's already a pricing reason why customers aren't using road. My take on reducing freight rates in the end means less money for the rail freight business, and less money for the rail freight business generally ends up being less freight on rail as either infrastructure becomes less reliable or the rail freight operators seek out only the most profitable rail hauls.

The arrival of Open Access has conincided with very significant declines in regional rail freight in Victoria and Queensland, with a couple of regional success stories in New South Wales. During this same period of time GWA has won very significant gains against road on the Darwin corridor - as dangerous as a monopoly may be, there's reasonable evidence that Open Access doesn't always do much better.
Sulla1

I think that linking Open Access to freight reductions is not quite right.  Open access is just one of a number of industry wide changes that occurred at the same time and i think it is perhaps the other changes that have led to reductions in freight.  The previous government run railways didn't have to ensure profitability and could carry load at a loss.  Plus there were legislative constraints that kept freight on rail despite the lower cost of road freight for some of these.  

In my view it is replacing loss making state owned railways with profit oriented privately owned ones and the removal of legislation that forced rail use that are the real reasons that rail freight was lost.  And given some of the productivity issues in the industry at the time (and in NSW some of the possibly corrupt deals done to force the railways to do work which it wouldn't have due to losses, but hey the Ministers mate was owed a favour), it was perhaps economically the wise thing to do, which rail is now starting to recover from.
  james.au Chief Commissioner

Location: Sydney, NSW
Unconfirmed reports in Rail Express that it is Macquarie taking on the remaining 51% of GWA.
  NorthWest Locomotive Fireman

Unconfirmed reports in Rail Express that it is Macquarie taking on the remaining 51% of GWA.
james.au

Confirmed in the Brookfield second quarter earnings call:

https://finance.yahoo.com/news/brookfield-infrastructure-partners-lp-bip-172340328.html

Do a search of the page for Genesee or Wyoming to find the relevant section.

Will be interesting to see if the business ends up rebranded as a result.
  bingley hall Minister for Railways

Location: Last train to Skaville
Unconfirmed reports in Rail Express that it is Macquarie taking on the remaining 51% of GWA.

Confirmed in the Brookfield second quarter earnings call:

https://finance.yahoo.com/news/brookfield-infrastructure-partners-lp-bip-172340328.html

Do a search of the page for Genesee or Wyoming to find the relevant section.

Will be interesting to see if the business ends up rebranded as a result.
NorthWest

well spotted
  justapassenger Chief Commissioner

Will be interesting to see if the business ends up rebranded as a result.
NorthWest
This sort of divestment would usually come with the option for the new owner to licence the original branding for at least a few years.

Brand licensing would usually be conditional upon the company not being sold on again or substantially broken up in that time, so an announcement of rebranding any time soon would be best interpreted as Macquarie signalling their intention to sell off or break up GWA.

I expect that New GWA will move fairly quickly to do what is needed to hand back the keys to the country lines they lease from the Government of South Australia. Macquarie should have been competent enough to ensure that closing these lines would not be prohibited by the brand licensing.
  bingley hall Minister for Railways

Location: Last train to Skaville

I expect that New GWA will move fairly quickly to do what is needed to hand back the keys to the country lines they lease from the Government of South Australia. Macquarie should have been competent enough to ensure that closing these lines would not be prohibited by the brand licensing.
justapassenger

Already being talked about I believe - even more importantly the sidings at the main line silos which still fall under GWA control.
  james.au Chief Commissioner

Location: Sydney, NSW
Will be interesting to see if the business ends up rebranded as a result.
This sort of divestment would usually come with the option for the new owner to licence the original branding for at least a few years.

Brand licensing would usually be conditional upon the company not being sold on again or substantially broken up in that time, so an announcement of rebranding any time soon would be best interpreted as Macquarie signalling their intention to sell off or break up GWA.
justapassenger
I wouldn't think this would be needed for an industrial business like this.  Id almost want to prevent future use of the name so as to minimise any possible competition issues that this sale is designed to prevent.
  justapassenger Chief Commissioner

I wouldn't think this would be needed for an industrial business like this.
james.au
GWA is not an industrial, it is a service provider which relies on B2B sales and consequently needs to take its branding seriously. They need the time to be allowed to develop a comprehensive rebranding strategy, not just change it overnight.

Id almost want to prevent future use of the name so as to minimise any possible competition …
james.au
Periods of brand licensing and non-competition are standard for a divestiture, buyers hold most of the cards and have the duty to their shareholders to take steps to ensure they are not sold a pup.

I would be astonished if the Macquarie-led consortium did not insist on a period (maybe as short as 2 years, probably closer to 5) of Brookfield not expanding rail operations in any of the markets where GWA operate (i.e. SA, NT, Vic, NSW).

Once that's considered, the brand licence is actually a positive move for New GWI, as it keeps the name 'active' for longer in case they ever want to re-use it and draw on the credibility of the business now owned by Macquarie.

… competition issues that this sale is designed to prevent.
james.au
I'm not convinced that regulatory issues were the real issue, it was mentioned in the memo to GWA staff but not in the quarterly earnings report. Remember that companies have to be more honest with investors than they do with employees.

Where in Australia do GWA and other Brookfield operations compete with each other?
  jmt Deputy Commissioner

G&W was a member of a JV that controlled Ferroviaria Oriental in Bolivia between 2002 and 2014. Acted as manager.

Sold out to local interests to avoid the possibility of nationalisation.

New indigenous owners retained livery (also applied to subsequently acquired locos), logo retained.



https://www.youtube.com/watch?v=ZxCQNPxVkFg


https://www.youtube.com/watch?v=nSjs--a9mHY
  james.au Chief Commissioner

Location: Sydney, NSW

1. GWA is not an industrial, it is a service provider which relies on B2B sales and consequently needs to take its branding seriously.

2. I'm not convinced that regulatory issues were the real issue, it was mentioned in the memo to GWA staff but not in the quarterly earnings report. Remember that companies have to be more honest with investors than they do with employees.

Where in Australia do GWA and other Brookfield operations compete with each other?
justapassenger (edited)


1. Look at SSR and QUBE, no-one cares that they have liveries from all over the place.  The livery isn't an important feature of their business like it is for retail transport like say airlines.  Freight transport is B2B as you say which is what I mean when I say industrial and all customers know who they're dealing with - they don't get confused by paint colour.

2. If kept, GWA will be another subsidiary of Brookfeild alongside ARC and the former Patrick Ports business.  This will no doubt pique the interest of the ACCC (who are far more active at the moment) which may highlight things they don't want highlighted.  So getting rid of GWA to a willing buyer who is going to help them fund the deal through asset sale is perhaps a good move.

Just on this last point, as I think as I type (and possibly supporting your idea that its not all competition related JAP), I think this divestment in itself is a sign.  Most of these investment houses buy a business, then get them to a stage where they can sell off the good (ie profitable) parts.  I suspect that the GWA business might just be a good and profitable business already, that they can sell off from day 1, to use those proceeds to reduce the debt required for the rest of the transaction.  And Maquarie doesn't buy businesses that dont have good returns.....
  michaelgm Chief Commissioner

And Maquarie doesn't buy businesses that dont have good returns.....
+1, regards, satisfied shareholder.
  justapassenger Chief Commissioner

1. GWA is not an industrial, it is a service provider which relies on B2B sales and consequently needs to take its branding seriously.
justapassenger
1. Look at SSR and QUBE, no-one cares that they have liveries from all over the place.  The livery isn't an important feature of their business like it is for retail transport like say airlines.
james.au
They do, however, have at least a small portion of the fleet fully up to date in the current livery and take steps to ensure those vehicles are nice and spiffy when they need to have publicity photos/videos done or for major announcements.

All the other operators in Australia are the same, including GWA themselves who have their modern locos in the current livery and the older stuff in a variety of former liveries including some decrepit junk still in AN green. Even before they had the modern classes (GWA, GWN and GWU) delivered, they always had some of their older fleet kept up to date.

If/when GWA is renamed to something else, I'm sure that they will be exactly the same - part of the fleet in the new branding for the announcement and for publicity photos, and the rest left in the old colours to be repainted when they are next scheduled to go into the workshop anyway.

First impressions do matter when it comes to selling B2B services. If two companies offer pretty well the same services at the same price, the one which makes a bit of effort to impress the client has a competitive advantage. That's why big companies have corporate boxes at the footy (it's for entertaining clients, staff only get to use leftover tickets) and advertise on mainstream media in time slots which have better than normal proportions of executives and directors viewing (e.g. BHP saturating the recent Tour de France TV coverage).

Anyway, the big issue is about changing the name of the company - something never done lightly or hastily - rather than any rail operator's spiffy/scruffy loco ratio.

GWA is actually an Australian company (Genesee & Wyoming Australia Pty Ltd) and not just a division of a US company. Once Macquarie own the business, they will own the name. If Brookfield-owned GWI want to take the G&W name out of circulation in Australia, they need to propose a deal which will be to the satisfaction of Macquarie-owned GWA.

An acceptable deal for Macquarie-owned GWA would be something along the lines of voluntarily renaming itself to something else within a year or so, in return for Brookfield-owned GWI agreeing that any further entry to the Australian market would use a name other than G&W.
  bingley hall Minister for Railways

Location: Last train to Skaville
Confirmed to staff in a memo today..............wasn't aware of PGGM existing involvement.

"........Macquarie Infrastructure and Real Assets (MIRA) and PGGM have agreed to assume full ownership of the GWA business concurrent with G&W’s acquisition by Brookfield and GIC."

"MIRA, one of the world’s leading alternative asset managers, and PGGM, a leading Dutch pension fund manager, are already well-known to us as owners of 49% of GWA for the past three years.

The GWA transaction will be funded by equity provided by PGGM, resulting in PGGM significantly increasing its stake in GWA, with MIRA-managed funds owning the remaining stake under joint governance arrangements."
  justapassenger Chief Commissioner

Confirmed to staff in a memo today..............wasn't aware of PGGM existing involvement.

"........Macquarie Infrastructure and Real Assets (MIRA) and PGGM have agreed to assume full ownership of the GWA business concurrent with G&W’s acquisition by Brookfield and GIC."

"MIRA, one of the world’s leading alternative asset managers, and PGGM, a leading Dutch pension fund manager, are already well-known to us as owners of 49% of GWA for the past three years.

The GWA transaction will be funded by equity provided by PGGM, resulting in PGGM significantly increasing its stake in GWA, with MIRA-managed funds owning the remaining stake under joint governance arrangements."
bingley hall
It's always been known that Macquarie was the leader of a consortium which bought the 49% stake rather than doing it all themselves, but it's the first time that I remember the identity of any of the other partners being disclosed.
  james.au Chief Commissioner

Location: Sydney, NSW
It will be interesting to see how management changes now.  PN has definitely had a change in aggressiveness since being purchased by private equity.
  Dangersdan707 Chief Commissioner
  james.au Chief Commissioner

Location: Sydney, NSW
In a statement released on August 3, Brookfield indicated it would dispose of the stake due to regulatory considerations, believed to be related to Brookfield’s existing rail operations in Australia, which includes ownership of below rail infrastructure in Western Australia, and its joint ownership of the LINX Cargo Care group. GIC, Brookfield’s partner in the GWI takeover, is also a key investor in Pacific National’s rail freight business.
Rail Journal
  justapassenger Chief Commissioner

That explains the use of the 'competition' argument for selling GWA.

Important to remember that these private equity takeovers are usually done by a consortium where only the leading partner is named in the media and the minor partners usually elect to stay silent.

The same applies to Macquarie's ownership of GWA, PGGC kept their involvement silent for over three years.

Brookfield to divest their stake in LINX next?
  james.au Chief Commissioner

Location: Sydney, NSW
Interesting development:

https://www.railexpress.com.au/aurizon-claims-gwa-sale-violates-its-first-right-of-refusal/

Aurizon looking to enter the fray.

ACCC will be interested in what happens here I suspect.
  bingley hall Minister for Railways

Location: Last train to Skaville
Interesting development:

https://www.railexpress.com.au/aurizon-claims-gwa-sale-violates-its-first-right-of-refusal/

Aurizon looking to enter the fray.

ACCC will be interested in what happens here I suspect.
james.au

Ambit claim by Aurizon hoping to get a bit of pay off to offset this year's losses Razz

ACCC wouldn't have a bar of it if it progressed beyond the courts.

If G & W are smart they will get their lawyers to ask why Aurizon did nothing back in 2016.
  Sulla1 Chief Commissioner

Interesting development:

https://www.railexpress.com.au/aurizon-claims-gwa-sale-violates-its-first-right-of-refusal/

Aurizon looking to enter the fray.

ACCC will be interested in what happens here I suspect.

Ambit claim by Aurizon hoping to get a bit of pay off to offset this year's losses Razz

ACCC wouldn't have a bar of it if it progressed beyond the courts.

If G & W are smart they will get their lawyers to ask why Aurizon did nothing back in 2016.
bingley hall

Yep, an attempted cash grab - and a legal action that could cost the company more than anything it could gain. The ACCC would be keen to spoil the party. Aurizon needs to get back to funding its operations and stop funding lawyers.
  PaulSurguy Station Master

Interesting development:

https://www.railexpress.com.au/aurizon-claims-gwa-sale-violates-its-first-right-of-refusal/

Aurizon looking to enter the fray.

ACCC will be interested in what happens here I suspect.

Ambit claim by Aurizon hoping to get a bit of pay off to offset this year's losses Razz

ACCC wouldn't have a bar of it if it progressed beyond the courts.

If G & W are smart they will get their lawyers to ask why Aurizon did nothing back in 2016.
bingley hall
When G Rail was sold to GWA the ACCC had a look at that transaction and where was Aurizon missing in action maybe because of rules on ownership of companies working in the same business coal cartage
  james.au Chief Commissioner

Location: Sydney, NSW
When G Rail was sold to GWA the ACCC had a look at that transaction and where was Aurizon missing in action maybe because of rules on ownership of companies working in the same business coal cartage
PaulSurguy
Correct.  See link below:

https://www.accc.gov.au/media-release/accc-releases-statement-of-issues-on-aurizon-and-pacific-nationals-competing-proposals-to-acquire-grail

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