The key sentence in the Australian Competition and Consumer Commission's announcement that it will not accept undertakings from Brookfield intended to allay competition concerns about its planned takeover of Asciano is that the regulator only explores undertakings if it believes that they not only have the potential to address its concerns, but are also "capable of being enforced."
Asciano's Pacific National division is an "above rail" company that transports goods and raw materials. Brookfield already owns the rails that Pacific National trains travel on in Western Australia, and a rail-connected coal Port in Queensland.
The combination of the two creates a vertically integrated business that the ACCC believes could favour itself against other users of the WA rail network and the Queensland Port - and in rejecting Brookfield's offer to submit to a tougher regulation and oversight the competition regulator appears to leave Brookfield with no room to come up with another offer.
First, it says there is a question about whether behavioural undertakings are capable of addressing the "scale and complexity" of the vertical integration of Brookfield's monopoly infrastructure assets and Asciano's above rail operations.
Then it says that there is "difficulty and risks" in designing obligations and undertakings that would be tough enough to address its concerns, but also give Brookfield the room it neds to run the business efficiently.
FInally, there is a question about undertakings that would be based in part on Western Australian and Queensland state access regimes that are subject to change and have been criticised for their lack of effectiveness, the competition regulator says.
The ACCC says that it is continuing to review Brookfield's Asciano bid, and expects to deliver a final decision on December 17. Brookfield also says it is assessing the ACCC decision, consulting with Asciano and considering a "variety of available alternatives," including possible new structural undertakings.
The rejection of Brookfield's initial undertakings points where the ACCC is headed, however, and the other Asciano suitor, Qube, does not have the same vertical integration issues with its proposed takeover.
That puts Brookfield on the spot. It's difficult to see it clearing the ACCC hurdle without agreeing to major surgery - the sale of at least half of its WA rail and Queensland port interests, for example. It could be that that is a bridge too far.
