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Brookfield targets Prime Infrastructure expansion

Brookfield Infrastructure Partners LP says its planned takeover of Prime Infrastructure will make it easier to fund expansion and improvements of the Australian company's global network of assets.

Brookfield announced plans Sunday to buy the 60 per cent of Prime Infrastructure that it doesn't already own in a deal that values the Australian company at $1.4-billion (U.S.).

"The big attraction to us are assets that are already good, but could be made more productive through expansion, in other words if we spend some money on them, we can do more business," said Andrew Willis, a senior vice-president at Brookfield Infrastructure.

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Prime"s flagship asset is the Dalrymple Bay Coal Terminal in Queensland, Australia, the exit point for a number of Australian miners to send shipments to China.

Prime also owns a number of natural gas transmission systems in New Zealand and Tasmania, a railway network in Australia, and a number of ports in Europe and China.

"Over time they can all be expanded, but it's going to take a lot of capital to do it," Mr. Willis said.

"It's far cheaper for Brookfield Infrastructure to borrow than it would be for Prime, so that's the advantage."

Brookfield took on a 40 per cent stake in Prime, previously called Babcock and Brown, in a recapitalization last year. Since the recapitalization plan was announced last October, the price of Prime's publicly traded shares has fallen.

"We tried to make a go of it with Prime as an independent business in Australia, and it didn't get a lot of shareholder support," Mr. Willis said.

Brookfield said its move to buy up the shares of Prime it doesn't already own comes after a number of investors approached them in the hopes that new ownership would help fuel expansion.

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"They needed more capital, so a number of Prime shareholders started pushing Brookfield Infrastructure to say 'look, take us out, give us Brookfield Infrastructure units and keep expanding the business'," Mr. Willis said.

Prime security holders will receive 0.24 Brookfield Infrastructure units for each Prime stapled security held, representing $4.60 Australian ($4.10 U.S.) per Prime security. Each Prime security holder is also entitled to cash in lieu of Brookfield units up to a limit of 4,000 units per holder.

Prime's independent directors have all recommended the transaction in absence of a superior proposal.

"Joining forces with established partners at Brookfield Infrastructure enables us to continue to participate in the returns from our current investments, within a larger, more diversified portfolio of high quality infrastructure assets," said David Hamill, Prime's chairman.

"The independent directors believe that a combination of these platforms offers Prime security holders an opportunity to invest in a stronger global group with access to greater financing options and significant growth prospects," he said in a release.

Brookfield said the transaction offers Prime shareholders a 32 per cent premium to the average share price in the 30 days before the announcement.

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The Australian infrastructure company shares are currently trading at a discount to their actual value, Mr. Willis said, adding the transaction will give Prime investors "a stake in a bigger, better company."

Brookfield Infrastructure is part of the Brookfield Asset Management Inc. group of companies, which is based in Toronto. The limited partnership is registered in Bermuda, and lists its units on the Toronto Stock Exchange..

Brookfield Asset Management has more than $100-billion of assets under management and more than 15,000 employees through a number of subsidiaries, many of them publicly traded in their own right.

The parent company will provide up to $300-million (U.S.) in the transaction with Prime. Following completion of the deal, Brookfield Asset Management will hold between 28 per cent and 39 per cent of Brookfield Infrastructure.

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