ACCC approves $18.7bn deal for Origin Energy in a bid to revive the green transition

The approval by the competition regulator clears the deal of a major obstacle, but Brookfield and EIG must still win over sceptical shareholders.

Australia’s competition regulator has approved Brookfield and EIG’s $18.7bn takeover bid for Origin Energy. It determined the deal was in the national interest by accelerating the transition away from fossil fuels despite lingering concern about competition issues.

The ruling, which is expected to be a defining moment in Australia’s aspiration to rapidly wean from coal by the end of the decade, now rests on whether Brookfield and EIG can sway hesitant shareholders who are angling for more money from the consortium.

The decision by the Australian Competition and Consumer Commission has been on a knife's edge, as the regulator signalled was concerned about Brookfield’s ownership of AusNet, Victoria’s principal electricity transmission network.

The ACCC had highlighted the possibility that Origin could secure access to transmission infrastructure that gives it a commercial advantage, a claim denied by the bidding consortium.

Brookfield and EIG offered concessions, most notably ring-fencing AusNet, and the ACCC on Tuesday gave the deal the rubber stamp but with conditional behaviour requirements. However, ACCC chair Gina Cass-Gottlieb said the regulator was still concerned about Brookfield’s ownership of AusNet.

“What is most important is the materiality of the public benefit,” Ms Cass-Gottlieb told The Australian.

“We believe the most likely result in an accelerated rollout of renewable energy generation, leading to a more rapid reduction in Australia’s greenhouse gas emissions.”

The ACCC said Origin and AusNet would be separated and there would be strict rules about communications between the two, and there would be a publicly available audited report into the compliance of the ring-fencing undertakings and the non-discrimination towards rival energy generators. Brookfield must also demonstrate its progress in spending on renewable energy generation.

“We‘re very conscious also that our failure, material failure to complete to the build-out will be damaging for their reputation in their ability to continue to attract investors into future funds,” Ms Cass-Gottlieb said.

A spokeswoman for the consortium said it was pleased with the ACCC ruling.

“The consortium welcomes the ACCC’s announcement that it has authorised the proposed acquisition of Origin Energy. We look forward to progressing the transaction,” the spokeswoman said.

The future of Origin is widely seen as a watershed moment for Australia’s energy transition, as Brookfield promises to spend between $20bn and $30bn to develop much-needed renewable energy generation projects.

The federal government has legislated a target that 82 per cent of the country’s electricity should be generated by renewable energy by the end of the decade – a target that authorities fear will not be met.

The prospect of a rapid increase renewable energy spending is a boost for the transition. Federal Energy Minister Chris Bowen welcomed the ACCC approval, although he acknowledged it still required further approvals from the Foreign Investment Review Board and federal Treasurer Jim Chalmers.

“I believe their plans to invest in renewable energy in Australia are very substantial and real and meaningful,” Mr Bowen told The Australian Financial Review Energy & Climate Summit in Sydney.

FIRB approval had been seen as a formality but a move by Saudi Arabia’s oil group, Aramco, to buy a strategic minority stake in EIG’s liquefied natural gas company MidOcean Energy for $US500m ($777.2m) is expected to be examined by Australian regulators, and the approval appears increasingly complex.

The deal must now win the favour of shareholders, several of whom have already said they oppose the value of the price offered by the consortium.

To succeed, the bid requires the support of more than 75 per cent of votes cast. AustralianSuper and Perpetual – both of whom have said they believe the Brookfield and EIG offer is too low – hold more than 15 per cent of Origin, leaving little wriggle room for the bidding consortium.

Shares in Origin rose more than 5 per cent after the ACCC ruling, indicating the market also believed Brookfield and EIG would revise its offer.

RBC analyst Gordon Ramsay said there was a risk shareholders reject the deal without an upward revision.

“In our view, there is still some risk that the deal is not approved by shareholders due to the strong electricity market conditions expected in financial year ’24 and financial year ’25,” Mr Ramsay said.

“These conditions eventuated after the initial proposal and shareholders may vote down the proposal due to the perceived undervaluing value of Origin‘s electricity assets.”

Origin said it would issue details about the shareholder vote along with the independent expert report in the coming weeks. The independent expert report is expected to be critical to swaying retail investors in particular.

Origin earlier this year accepted an offer from Brookfield and EIG that values the retailer at $8.85 a share.

“I think the deal gets done but I think the offer will have to go above $10 a share,” said one senior energy executive.

Brookfield and EIG have declined to comment on the push from some shareholders for more value, but The Australian understands the consortium believes its offer is fair value when considering the impact on shareholders of the vast spending required to develop renewable energy generation assets, if Origin remains as a public company.

Originally published as ACCC approves $18.7bn deal for Origin Energy in a bid to revive the green transition