By Jenny Wiggins From The Sydney Morning Herald

Asciano investors will scrutinise Brookfield Infrastructure’s fee structure closely if the Bermuda-based group proceeds with a formal $9 billion takeover bid after the ports and rail group releases full-year results on Tuesday.

Brookfield Infrastructure’s due diligence on Asciano is understood to have gone well, with senior executives believed to have been impressed with the quality of the group’s assets and its management team.

Asciano investors are waiting now on a formal bid from Brookfield Infrastructure, which approached the Australian company’s board in June with an indicative offer worth $9.05 in scrip and cash.

Investors remain wary of holding too much Brookfield Infrastructure scrip, even if the group, which is already listed in New York and Toronto, also lists in Australia. Asciano’s shares closed on Friday at $8.11, well below the indicative bid, indicating investors remain uncertain about the structure of any formal bid.

Some investors have concerns over the amount of income that Brookfield Infrastructure, which was spun off from Toronto-headquartered Brookfield Asset Management in 2008, will spend on management fees.

External management models have fallen out of favour in Australia following the collapse of investment group Babcock & Brown and the restructuring of Macquarie’s listed infrastructure vehicles during the global financial crisis.
Old-style model

“The management-fee model is a bit of an old-style model,” one institutional investor who owns Asciano shares said.

Brookfield Infrastructure, which earned net income of $US229 million ($310 million) in the year ending December 2014, paid $US107 million in management fees to Brookfield Asset Management that year, up 5 per cent on the fees it paid in 2013 and up 24 per cent on 2012.

The fees represent 1.25 per cent of Brookfield Infrastructure’s market value.

Brookfield Asset Management, which owns a 29 per cent equity stake in Brookfield Infrastructure, received $US625 million in base management fees from all its listed partnerships in 2014, up $US123 million on the previous year.

The Canadian group also received $US48 million in incentive distributions from listed partnerships in 2014, $US21 million in performance fees for managing public securities portfolios and $US69 million in transaction and advisory fees, mostly from real estate and infrastructure transactions.

Brookfield Asset Management’s fee income has also been increasing in 2015. Its fee revenue rose 16 per cent on a year earlier to $US206 million for the quarter ending in March, and rose 24 per cent to $US230 million for the quarter ending in June.
Limited rights

If Asciano investors accept Brookfield Infrastructure’s units, they will also have limited rights. Appointment of directors is controlled by Brookfield Asset Management, and other investors are unable to remove directors or prevent a change of control.

“Unlike holders of common stock of a corporation, our unitholders are not able to influence the direction of our partnership, including its policies and procedures, or to cause a change in its management, even if they are unsatisfied with the performance of our partnership,” Brookfield Infrastructure said in its 2014 annual report to the US Securities and Exchange Commission.

Still, Brookfield is expected to come up with a deal that satisfies the concerns of Australian investors, given its eagerness to expand in Australia, particularly if it brings in US investment partners that could help fund a mostly cash bid.

Australia is already an important market for the infrastructure group, contributing almost one-third of its cash flow, and is currently its second-largest market after Europe.

If it succeeds in acquiring Asciano, Australia will at least temporarily become Brookfield Infrastructure’s largest market.

IMAGE: Brookfield has been analysing Asciano’s port and rail assets. Photo: Louise Kennerley

For more on this story go to: http://www.smh.com.au/business/brookfield-management-fees-under-scrutiny-as-asciano-investors-wait-on-9b-bid-20150814-giyzcw.html#ixzz3j50sXmAR