Pressure builds on Origin’s suitors to lift $18.7bn takeover bid after Origin lifts earnings guidance
Origin Energy’s bullish earnings guidance adds further pressure on international firms Brookfield and EIG to hike their $18.7bn takeover for the energy major.
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Pressure is mounting on international suitors Brookfield and EIG to lift its $18.7bn bid for Origin Energy after Australia’s largest electricity and gas retailer hiked its annual earnings guidance.
The future of Origin Energy is seen as a defining moment for the potential of Australia to rapidly wean its $2.5 trillion economy off its coal dependency. But Origin investors are pushing the consortium to increase its bid, insisting the value of the Australian company has materially increased since a deal was struck in March.
Offering evidence to shareholders sceptical about the value of the Brookfield and EIG bid, Origin said it now expected 2024 underlying earnings will total between $1.4bn to $1.7bn, having previously indicated that it would be between $1.3bn to $1.7bn.
Origin said it also expects production from the Australia Pacific LNG – which the company is a shareholder – will be near the top end of the guidance range provided.
Origin Energy chief executive Frank Calabria said the company is in a strong position.
“Origin is in a strong position with momentum in performance carrying over into the early part of the 2024 financial year. We are clear in our focus, which is to continue executing on our strategy and priorities, and delivering good outcomes for our customers, communities, and planet,” said Mr Calabria.
The improved outlook is the latest is a series of events seized on by shareholders who insist the Brookfield and EIG offer undervalues Origin.
Origin earlier this year accepted an offer from Brookfield and EIG that values the retailer at $8.85 a share – a then 55 per cent premium on the share price of the Australian corporate heavyweight when it had not long earlier posted an annual loss of $1.43bn as it reeled from a global energy crunch.
A tempering of global energy markets have eased pressure on retailers such as Origin, which have begun to recoup losses from higher customer bills, that has aided the share price of the company.
The improved outlook for the company has seen analysts revise their valuation of Origin amid increasing confidence in the performance of the company.
Macquarie in September said it believed a fair value for Origin was around $10 a share.
The push for a revised offer is also buoyed by the performance of the UK energy company, Octopus Energy. Earlier this month, Octopus – the UK’s second-largest energy company that has grown rapidly from its foundations as a technology company – said it has struck a deal with Tokyo Gas to manage three million customers via its Kraken platform. The deal has the scope to be increased to 10 million customers.
Origin first bought a 20 per cent slice of British conglomerate Octopus Energy in May 2020, and has since piled in more than $700m to maintain its stake.
Other investors in Octopus include former US vice president Al Gore, who purchased a 13 per cent stake in Octopus in 2021 £438m ($845m), valuing the company at more than £3bn.
Octopus said the platform now manages about 40 million customers after deals with Origin and French giant EDF. Octopus aims to have 100 million accounts on the platform by 2027.
Investors already angling for a higher bid from Brookfield and EIG said the Tokyo Gas announcement cemented their views that a revised bid was justified.
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 a public company.
Still, Brookfield and EIG are struggling to convince a large portion of Origin shareholders. Shares in Origin continue to trade around $9.30 a share, indicating investors believe a revised offer will have to come.
Origin’s largest shareholder Australian Super and smaller investor Perpetual has indicated they will oppose the Brookfield and EIG offer.
To succeed, the bid requires the support of more than 75 per cent of votes cast. AustralianSuper and Perpetual hold more than 15 per cent of Origin, leaving little wriggle room for Brookfield and EIG.
An independent expert report into the valuation of Origin is expected as soon as Wednesday, which is expected to guide smaller retail investors. Should the Grant Samuel report deem the Brookfield and EIG offer too low, it would scupper the deal – though sources said the expert is likely to give the deal sufficient support.
The deal threatens to overshadow talks between Origin and the NSW state Labor government over the future of one of the country’s largest coal generators – Eraring. An independent report commissioned by the state recommended the government enter into negotiations with Origin to prolong its life beyond its scheduled retirement in 2025.
Mr Calabria said talks were ongoing, with negotiations currently focused on how long Eraring will need to stay open for. He said both sides are aiming for a resolution as quickly as possible.
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Originally published as Pressure builds on Origin’s suitors to lift $18.7bn takeover bid after Origin lifts earnings guidance
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