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Genesee & Wyoming provided better terms and conditions for the sale of its Australian rail business to Macquarie Group than it did to Aurizon after putting the rail assets on the block for $627 million, the Queensland rail company has alleged.
Aurizon filed a claim with the NSW Supreme Court in mid-September alleging US-headquartered G&W breached agreements when it arranged to sell its Australian rail assets to Macquarie Infrastructure and Real Assets (MIRA) and Dutch pension fund PGGM after striking a $US8.4 billion ($12.2 billion) deal in July to be acquired by Brookfield Infrastructure and GIC.
The outcome of the legal action is being closely watched by G&W's shareholders amid concerns it could delay the US company's sale to Brookfield.
G&W owns 51.1 per cent of its Australian rail business, with the rest having been owned by a consortium of funds and clients managed by MIRA since 2016. Aurizon claims it has first right of refusal over any sale of the local G&W rail operations due to an agreement struck in 2006 when it bought some Western Australian rail assets then owned by G&W and Wesfarmers.
Aurizon alleges that these rights of first refusal were breached twice – first in 2016 when G&W and Macquarie struck a partnership agreement without reference to Aurizon, and then again in 2019 when G&W approached Aurizon to sell its Australian rail assets but in a manner inconsistent with the rights of first refusal.
Aurizon claims it has suffered loss and damage as a result of the breaches, including loss of "economies of scale" it would have achieved if had been able to buy G&W's rail business on the same terms as Macquarie.
In relation to the 2019 claim, G&W sent a notice to Aurizon on August 5 offering it the opportunity to buy the Australian rail assets "purportedly" on the same terms and conditions that were offered to Macquarie for a total price of $627.4 million, according to legal statements filed by Aurizon and obtained by The Australian Financial Review.
The offer was open until September 5, but on August 30, Aurizon told G&W that its terms and conditions were not the same as the offer made to Macquarie, and that it therefore breached the 2006 rights agreement.
Aurizon claims Macquarie was given more time to get approval for buying G&W's rail assets from the Australian Competition and Consumer Commission (ACCC), being allowed six weeks from August 4 – the date Macquarie entered into a sale agreement with G&W.
Aurizon says it was obliged to get ACCC approval within six weeks of August 5 – the date it received the offer to buy the rail assets from G&W.
Aurizon also claims that if it had proceeded with buying G&W's stake, it was not in a position to enter into the 2016 partnership agreement between G&W and Macquarie due to restrictions on transfers of partnership interests. It alleges G&W's 2016 transaction with Macquarie breached the terms of Aurizon's 2006 rights agreement.
"The offer is not capable of acceptance," Aurizon says in its claim. The ACCC is still reviewing the proposed sale of G&W's rail assets to Macquarie.
G&W, which filed a response to the Aurizon claims on November 1, acknowledges some of Aurizon's allegations on how the offer to sell the rail assets was structured, but says Aurizon rejected its initial offer as well as a new offer made on September 19 and failed to mitigate any loss and damage as a result.
G&W also says Aurizon was given sufficient information to decide whether or not it should accept the sale offer.
A directions hearing will be held on Friday. Both parties say they are open to mediation.
This article first appeared on www.afr.com
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