Australia’s largest rail freight operator Aurizon (ASX: AZJ) has extended its reach into South Australia and the Northern Territory through a $2.35 billion deal to acquire One Rail Australia.
The Brisbane-based group is keen to bring One Rail’s bulk rail haulage and general freight assets in these markets into its fold, bolstering Aurizon’s existing operations in Queensland, NSW and Western Australia.
The deal adds the 2,200km Tarcoola-to-Darwin railway line to the group’s bulk and general freight assets, which Aurizon plans to integrate into its business, along with One Rail’s South Australian regional infrastructure, five rail yards, 68 active locomotives, more than 1,000 active wagons and about 400 employees.
However, One Rail’s haulage business in QLD and NSW, identified by the company as East Coast Rail (ECR), will be offloaded by Aurizon through a demerger or a trade sale.
The multi-billion-dollar deal is still subject to conditions, including approval by the Australian Competition and Consumer Commission (ACCC).
The sale of ECR will be part of an enforceable undertaking by Aurizon to comply with competition concerns by the ACCC.
“The One Rail acquisition is highly strategic and transformative for Aurizon,” says Aurizon CEO Andrew Harding.
“It is fully aligned with Aurizon’s strategy to grow our bulk freight business into new markets and new geographies in Australia.”
Aurizon hinted in June of its desire to double earnings in the bulk business over the next decade.
“The One Rail acquisition delivers a step change for Aurizon Bulk as a new entrant in the South Australian and Northern Territory region, and supports the ongoing growth of non-coal revenue in the Aurizon portfolio,” says Harding.
“Upon completion of the transaction, with the integration of One Rail bulk and divestment of ECR, the Bulk share of Aurizon’s haulage revenue will represent around 40 per cent.”
One Rail Australia is expecting aggregate EBITDA of $220 million for calendar 2021 with $80 million generated from the bulk business and $140 million from ECR.
The ECR business has a long-term coal haulage contract with Glencore for its mines in the Hunter Valley.
Aurizon is expecting to complete the One Rail Australia acquisition early next year. The sale of ECR is targeted for completion next calendar year.
Shares in AZJ are down 4.37 per cent to $3.72 per share at 10.56am AEDT.
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