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ACCC opposes Transurban’s acquisition of majority stake in Horizon Roads

In a groundbreaking move, the competition regulator, the ACCC, will oppose the proposed acquisition of a majority interest in the small Melbourne toll road group Horizon Roads by sector giant Transurban Group (ASX:TCL). This decision comes after concluding that any purchase would likely substantially reduce competition for future toll road concessions in Victoria.

Transurban, Australia’s largest toll road operator, currently operates the CityLink and is constructing the West Gate Tunnel toll road in Melbourne.

EastLink, a 39-kilometre freeway in southeast Melbourne connecting Mitcham to Frankston, plays a vital role in the road network, linking various freeways.

Transurban aims to acquire a majority interest in Horizon Roads through a competitive sale process. Horizon Roads, under ConnectEast, holds a concession from the State of Victoria to operate the EastLink toll road until November 2043.

The ACCC’s recent release underscores the regulator’s commitment to preserving competition, akin to its decision to block ANZ’s $4.9 billion acquisition of Suncorp’s banking operations.

The Commission expressed competition concerns about the transaction in late June, shortly after the acquisition announcement in March.

While Transurban is a dominant player in toll roads and ANZ is one of the four giants in banking and financial services, the ACCC believes both transactions would significantly reduce competition and further solidify their positions.

Investors reacted to this news, marking down TCL shares by over 2% on Thursday.

Horizon Roads operates the EastLink toll road and is the only other private toll road operator in Australia. Another Melbourne toll road, the North East Link, set to be operational by 2028, will be built and operated by the Victorian Government.

“The proposed acquisition would consolidate Transurban’s position in Victoria and prevent the entry of a rival operator capable of competing closely for future toll road concessions,” said ACCC Chair Gina Cass-Gottlieb in a Thursday statement.

The ACCC received submissions expressing strong concerns from stakeholders, including the Victorian Government’s submission outlining its concerns, which the ACCC deemed significant.

“We have concluded that if Transurban doesn’t acquire Horizon Roads, it would likely be acquired by a potential long-term rival and could be used as a platform to develop the capabilities needed to compete more strongly for other toll road concessions,” Ms. Cass-Gottlieb added.

The Commission noted that Transurban’s scale and in-house modeling give it a substantial advantage over rival bidders for toll roads, and this proposed acquisition would further cement that advantage.

While there is a pool of traffic modeling experts globally, Transurban has developed recognised expertise in preparing high-quality traffic models in Australia, utilising detailed datasets and modeling options more quickly and cost-effectively than its rivals.

The ACCC’s investigation also considered the extent to which the Victorian Government can constrain Transurban and level the playing field for future toll road concession sales in Victoria.

“We acknowledge that the Victorian Government can run open tender processes, but when one party has material incumbency advantages compared to other potential bidders, effective competition for future sale processes becomes less likely,” Ms. Cass-Gottlieb concluded.

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