Origin,one of the largest Australian power and gas suppliers,revealed this week it had opened its books to a consortium of Canadian asset giant Brookfield and US-based energy investor EIG,which has lobbed a surprise $9-a-share bid to buy the company and divide its assets between them.
Asset manager Brookfield is proposing to invest $20 billion on firmed renewable energy projects in Australia if its bid to buy Origin Energy succeeds.Luis Ascui
Under the terms of the offer,Brookfield would buy Origin’s power generation and retailing division supplying 4.5 million customer accounts,and has outlined ambitious plans to spend another $20 billion on renewable energy projects to turn the company into Australia’s biggest green energy provider by 2030. MidOcean Energy – an LNG company formed by EIG – would acquire its interest in a Queensland liquefied natural gas joint venture,Australia Pacific LNG.
Representing nearly a 55 per cent premium on the stock’s previous closing price,the joint bid is considered to have a strong chance of success,with Origin’s board saying it intended to recommend shareholder approval and analysts describing it as a “knockout bid”.
However,even if the deal is ultimately accepted by the board and Origin’s shareholders following an eight-week due diligence period,investors and analysts have cautioned there will be “more hurdles that need to get jumped” in the months ahead.
“Various regulators will have to opine on the deal,so who knows,” said Suhas Nayak,portfolio manager at Origin Energy investor Allan Gray. “This space has been a bit fraught on the regulatory side ... and every deal has its own nuances.”
Any takeover will require regulatory approval from Australia’s Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission (ACCC),which expects to launch a “public review”.
As Brookfield intends to acquire Origin’s power generation and energy retailing divisions,analysts have flagged possible competition concerns arising from Brookfield’s ownership of Victorian power transmission network operator AusNet.
The ACCC said it had been contacted by Brookfield,EIG and Origin.
“We are awaiting a submission in due course,but expect to conduct a public review where we will carefully consider any likely competitive impact resulting from the proposed transaction,” an ACCC spokesperson said.
While some observers view FIRB approval as “less of an issue” because both bidders are well-known in Australia,Credit Suisse analyst Saul Kavonic has flagged that Treasurer Jim Chalmers might use the approvals process to pressure the suitors to make certain commitments. Origin’s Australia Pacific LNG (APLNG) venture is one of the three east-coat gas exporters in the cross-hairs of intensifying federal government pressure to make more gas available to the domestic market at lower prices.
“FIRB approvals loom large for proposed acquisitions of this nature,and the government could use its approvals leverage to extract concessions on domestic gas prices,” Kavonic said.
A spokesperson for Chalmers said the transaction would be subject to regulatory processes and considerations,“so it is not appropriate to comment further at this time”.
As surging fossil fuel costs drive up energy prices across Australia’s eastern seaboard,the Albanese government is debating a range of potential interventions in the gas market to tame runaway bills,such as setting price caps on local gas sales and stronger limits on how much gas can be shipped as LNG.
Investment bank Macquarie on Friday said government policies surrounding gas and possibly coal could influence Origin’s profit outlook and affect the consortium’s final offer price.
CLSA analyst Daniel Butcher said the consortium’s offer,at a 55 per cent premium,was “very likely to proceed”. “We view the deal as a knockout offer,” he said. “The conditions are fairly standard – due diligence,ACCC,FIRB – so we believe the risks to the deal becoming binding are quite low.”
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