Don’t expect a better offer, Brookfield tells Origin shareholders

Brookfield says Origin Energy shareholders shouldn’t expect a sweetened bid if its almost $20bn offer fails to get the requisite support.

Brookfield says there is no sweetened plan C if its almost $20bn bid for Origin Energy fails.

And it says that even if it renews interest in Australia’s largest electricity and gas retailer it will first have to consider the implications of government intervention designed to flood the country’s electricity market with renewable energy.

The comments mark a stark warning by Brookfield to Origin shareholders that the joint $9.39-a-share offer with EIG Partners may be its best. Recent commitments from the Australian government to underwrite a massive expansion of renewable energy is widely seen as unfavourable to large players such as Origin.

Shares in AGL Energy have fallen nearly 10 per cent since the government announced its expanded capacity investment scheme as investors sour on the capacity of renewable energy developers to capitalise on Australia’s volatile wholesale electricity market.

The government has proposed to implement a model for renewables, which guarantees taxpayers compensate a developer when the wholesale electricity price falls to low levels in exchange for projects paying the government in the event prices breach a maximum threshold.

In a thinly veiled warning that Brookfield could well revise its offer downward, the head of renewables for the Canadian private equity giant, Luke Edwards, said shareholders of Origin should not expect an immediate new bid.

“Should the scheme not proceed, Brookfield intends to do further work on the government’s proposed expansion to its capacity investment scheme and national energy transformation partnership, and the extent to which this intervention negatively impacts our view on the value of Origin Energy Markets,” Mr Edwards said.

“We will do this work before considering whether to continue pursuing a proposal to acquire Origin Energy or the Origin Energy Markets business.”

The comments come hours before the proxy deadline for Origin shareholders to vote on Brookfield and EIG’s existing offer, which is widely expected to fall short in securing the required support of 75 per cent of shareholders

The vast majority of Origin shareholders will vote prior to the in-person vote being conducted Monday but investors who lodge their ballots electronically may change their votes.

The Australian reported that proxy voting on the offer – which was suspended when the consortium tabled a last-minute revised bid – showed 70 per cent of votes cast were in favour of the transition and online voting was unlikely to change that.

Sources said a total of 70 per cent of Origin votes had cast their ballots electronically previously.

Origin on Thursday rejected an alternative proposal from Brookfield and EIG, setting in place the vote on December 4.

AustralianSuper – Origin’s largest shareholder with a 17.5 per cent stake – has confirmed it has voted in opposition to the deal, a stance which will likely be key if the scheme fails as expected.

The expected failure to woo enough shareholders has already turned attention to Brookfield and EIG’s next step.

Speculation was fuelled when EIG’s chief executive said the LNG giant had a “plan B and a plan C” – comments that grew in credibility when the consortium tabled its now rejected two-headed deal.

Under the terms of the new offer, which if Origin had accepted would have replaced the original offer, Brookfield and EIG would pay shareholders $9.43 a share, with the option of institutional investors buying in. This required support of 75 per cent of shareholders.

If that vote failed, then Brookfield and EIG had proposed that Origin shareholders would be offered $9.08 a share from EIG, and Brookfield would buy the energy markets business for $12.3bn from its consortium partner. Critically, this deal required support from 50.1 per cent of Origin’s shareholders, undercutting the capacity of AustralianSuper – which has a 17.5 per cent stake in Origin – to scupper the deal.

But in a statement on Thursday, Origin said the revised offer was incomplete and too complex, a decision that Mr Edwards said Brookfield respected.

Brookfield’s hope now rested with swaying any votes that may have previously gone against it or those that did not engage last time.

Jamie Hannah, the deputy head of investments at VanEck, said he did not hold much hope of a deal being salvaged.

“We were supporting the deal and we have voted in favour of the translation but I don’t think there is much chance it goes through,” Mr Hannah said.

“Never say never, and maybe they have been able to work some of those investors who voted against, but the chances seem slim.”