Origin snapped up in $18bn takeover deal with giant green energy pledge

A blockbuster deal has been struck for two North American investors to buy one of Australia’s biggest energy players.

Origin’s board said it unanimously recommends the company’s shareholders vote in favour of the offer. Picture: Greg Wood

Origin Energy has signed a $18.7bn takeover deal with suitors Brookfield Asset Management and MidOcean Energy after months of talks and pledged to build a giant 14 gigawatts of new renewable and storage generation in Australia over the next decade.

The Australian power and gas giant said it had entered into a binding scheme implementation deed with investors to receive $8.912 a share, split between $5.78 a share and $US2.19 a share.

The buyout has been set at a 53.4 per cent premium to Origin’s closing price on November 9, the last trading day before the consortium’s deal was disclosed.

The deal, the fourth offer by the consortium since talks started in August, includes a plan for Brookfield to invest an extra $20bn in Origin through to 2030 to build up to 14 GW of new renewable generation and storage facilities in Australia.

The proposed investment in new-build renewables represents one-fifth of the total utility-scale renewable capacity required to be developed across the national electricity market through to 2030.

“As the energy transition gathers pace, what’s needed is increasingly clear: faster deployment of large-scale renewables, the accelerated, responsible retirement of coal generation, and an interim, supportive role for gas as the dependable back-up fuel,” Brookfield Asseet Management chair Mark Carney said.

“Brookfield is determined that the new Origin energy markets will lead the way in all respects at this critical moment for the Australian economy.”

The consortium said the level of spending was “expected to enable the retirement of one of Australia’s largest coal-fired power generation plants, Eraring, and will be undertaken with the highest regard for network reliability and security.”

Companies including Origin face a thorny task as they work to wind down giant coal-fired generation plants and accelerate a switch to clean energy amid historically high wholesale electricity prices.

The incoming Minns government in NSW has already signalled it will begin urgent negotiations with Origin to keep the Eraring power station open past its scheduled close date in August 2025. NSW premier-designate Christopher Minns has acknowledged that the government might have to buy back Eraring, saying taxpayers had been “fleeced” by its sale.

Brookfield has drafted in sovereign wealth giants GIC and Temasek as co-investors on the deal, while MidOcean has reached agreement for US energy giant ConocoPhillips to buy 2.49 per cent of Origin’s Australia Pacific LNG project.

Brookfield has also hatched a deal with Reliance Industries, one of India’s biggest companies, bringing it on as a strategic partner to assess areas of collaboration in renewable energy.

Origin’s board said it unanimously recommended shareholders vote in favour of the scheme in the absence of a superior proposal.

“The significant premium placed on Origin by the consortium reflects the value of our strategy and our advantaged position to capture value from the energy transition. We believe this transaction is a great outcome not only for our shareholders, but for all stakeholders including our customers, employees and partners,” Origin chief executive Frank Calabria said.

“We believe this transaction also stands to benefit the broader Australian community as it will unlock significant capital that can help accelerate the energy transition and deliver benefits in the form of cleaner, smarter and lower-cost energy for our nation over time.”

The Brookfield-led transaction will result in Origin being split into two. Brookfield will control Origin’s energy markets business, comprising electricity and gas retailing, while EIG’s MidOcean unit will buy the integrated gas business, which includes the prized APLNG export plant.

Origin and the consortium said they were targeting implementation of the scheme by early in the 2024 calendar year.

The consortium said it was under an obligation to make an ACCC application by April 14, 2023, the next step in a string of regulatory hurdles for the consortium.

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Origin Energy chief executive Frank Calabria. Picture: Britta Campion

ConocoPhillips, which already owns a 47.5 per cent stake in the APLNG project, said it intended to exercise its rights under the shareholders agreement to assume roles including upstream operator and coal seam gas marketing agent.

Brookfield has struck the deal through its Global Transition Fund I - which it describes as the largest private fund in the world focused on the transition to net zero.

Brookfield Renewable expects to invest up to $US750m, which will be funded

through a mix of corporate debt, “up-financings” of existing hydro assets and proceeds from asset recycling initiatives.

Brookfield Asia Pacific boss Stewart Upson said the Origin deal gives Brookfield a unique opportunity to invest at least $20bn and “make a material difference” to achieving Australia’s net zero targets.

“We will build on the success of our global renewable power and transition business where we have a mandate to ‘go where the emissions are’ in putting billions of dollars behind an executable plan to reduce emissions at Origin,” Mr Upson said.

“Brookfield has the capital, expertise, supply chain strength and global track record that’s

needed to transform Origin’s generation fleet to greener sources and accelerate Australia’s energy transition while ensuring network security and reliability.”

The consortium trimmed its offer to buy Origin in February after months of due diligence and uncertainty about the impact of Labor’s intervention on gas prices.

A bid was lowered to $8.90 a share after the duo previously offered $9.00 a share in November, with a scheme of arrangement offer remaining indicative and non-binding.

The green plan would see Brookfield tap Origin’s gas power plants which could be used as crucial back-up power for boosting its solar and wind generation this decade.

The Australian government complicated the landscape for energy investors with its December legislation capping gas prices in the domestic market for a year, and giving itself power to intervene in gas markets on a permanent basis.

The intervention was slammed by Australian LNG producers, and drew concern that it could derail the Brookfield-led takeover.

Brookfield embarked on the Origin deal after walked away from acquiring AGL Energy, rejected twice with takeover bids.

The takeover play also underscores the ongoing appetite of EIG for big gas deals after it was foiled in its attempt to buy a 10 per cent stake in the Australia Pacific LNG project with ConocoPhillips pre-empting the $2.1bn sale. EIG also failed to buy Santos in a $13bn-plus deal back in 2018.

However, EIG’s MidOcean unit in October bought stakes in four of Australia’s largest LNG projects in a $US2.15bn deal, marking the latest shake up in the booming sector.