Power and gas giant Origin Energy on Thursday said it had opened its books to Canadian asset manager Brookfield and US-based energy investor EIG,which lobbed a $9-a-share offer to buy Origin and divide up its assets between them. Representing nearly a 55 per cent premium on the stock’s previous closing price,the offer is considered to have a high chance of success,with Origin’s board intending to recommend shareholder approval and analysts describing it as a “knockout bid”.
Origin Energy is planning to close its Eraring coal-fired power station,the largest in Australia,by as early as 2025.Dean Sewell
As the Albanese government sets targets for the eastern seaboard’s fossil fuel-dominated grid to source 82 per cent of its power from renewables by 2030,Brookfield Asia-Pacific chief executive Stewart Upson said Origin was a well-run business in an enviable position to seize on opportunities developing clean energy infrastructure much faster than its competitors.
Origin’s leading portfolio of fast-start gas-fired power stations could provide the “firming” capacity to support the build-out of new renewable energy when the wind isn’t blowing and the sun isn’t shining,Upson said,meaning Brookfield would not immediately have to rely on storage projects like big batteries and pumped hydro that often take longer to develop. Brookfield’s plan for Origin includes additional investment of $20 billion by 2030 to build renewable capacity and storage to position Origin as “Australia’s leading ‘green-tailer’.”
“What Origin has is a quicker path to meaningfully deploy renewables that are still ‘firmed’,while then taking longer to develop the longer-term firming capacity,” Upson said.
“That’s why we think that they are the best-placed in the market to be able to really accelerate the transition,which is clearly something that needs to occur to meet the legislated goals.”
ASX-listed Origin Energy spans coal,gas and renewable power generation,electricity and gas retailing and a 27.5 per cent stake in a Queensland liquefied natural gas joint venture,Australia Pacific LNG (APLNG). Under the takeover offer,Brookfield would acquire Origin’s domestic energy generation and retailing arms,while MidOcean Energy – an LNG company formed and managed by EIG – would acquire the interest in APLNG.
The bid comes after Brookfield this year lobbed an unsuccessful offer with Australian tech billionaire Mike Cannon-Brookes to buy AGL for $8 billion,which came with a pledge to spend a further $10 billion to $20 billion building renewables to fast-track the closure of its coal-fired power stations.
It was revealed on Thursday that Origin had subsequently received an indicative takeover offer from the Brookfield-EIG consortium at $7.95 a share on August 8. The bidders then made another pitch at $8.70 to $8.90 a share,before Origin agreed to participate in talks that led to the $9-a-share bid.
“Our confidence in Origin’s prospects underscored our engagement with the consortium and delivered a material increase on their initial offer,” Origin chairman Scott Perkins said.
Origin’s share price soared 34 per cent to end the day trading at $7.80,its highest in more than two years,with a number of investors signalling support for the offer.
Allan Gray portfolio manager Suhas Nayak said Origin’s board had “done right by shareholders” in deciding to grant due diligence at the higher offer price.
“The board has done a good job,” he said. “There is a balance here between the opportunity for existing shareholders and a deal being done.”
Another investor,Merlon Capital,also said the offer represented “compelling value”. “We see the bid at the upper end of our valuation range,” it said.
The takeover,if it proceeds,will require regulatory approval from Australia’s Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission (ACCC),which said on Thursday it expected to conduct a public review into the proposed deal. Possible competition concerns may arise from Brookfield’s ownership of Victorian power transmission network operator AusNet.
“A lot of things need to happen before[the offer] is presented to shareholders,” Nayak said.
However,CLSA analyst Daniel Butcher said the 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.”
MidOcean Energy chief executive De la Rey Venter on Thursday said his company had been actively seeking to acquire interests in high-quality projects in the Asia-Pacific region that could benefit from its extensive LNG experience. EIG had attempted to enter the APLNG joint venture in October last year,agreeing to buy some of Origin’s interest. But the deal was blocked by one of Origin’s venture partners,US-based ConocoPhillips.
“Origin’s integrated gas business – which would build on MidOcean’s existing investment in Australia – will help enable broader decarbonisation efforts in the region by supplying critical natural gas and LNG to the domestic and global markets for decades to come,” Venter said.
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