All eyes on Origin Energy as countdown begins to vote on Brookfield/EIG $16bn buyout deal

Origin Energy managing director Frank Calabria. Picture: Britta Campion

AustralianSuper now needs to pull out the aggressive tactic of buying shares with an arrangement where they settle on the same day of acquisition if they want more votes to count over the $16bn buyout proposal of Origin Energy by Brookfield and EIG.

Typically, a group like AustralianSuper buys shares through a custodian, and by trading that way the settlement takes days rather than hours.

But with an arrangement where you can acquire shares and settle them on the same day, then technically you can be a buyer in the group right up until the vote on the deal for them to count.

With the shareholder vote set to unfold on Thursday, Origin Energy has become the most closely watched buyout target of this year, as its largest investor AusSuper plans to derail the $16bn bid by signalling its clear intention to vote against the $9.53-per-share transaction and amass a larger stake to assert its influence.

There’s a lot at stake not just for Brookfield and EIG, which have spent about 18 months working on the proposal, but for all the advisers working on the transaction hoping to use the proceeds to pay bills, in what has been a skinny year on the deals front in an uncertain economic environment.

Origin’s scheme booklet says it has over $60m of transaction costs contingent on the outcome, with some suspecting much of that is fees paid to investment bankers.

There’s also a lot at stake for the country’s largest superannuation fund if it manages to block the transaction, only to see the share price plunge in the coming years, as there is for Origin’s board if it turns out they have recommended an offer that is below what the company is valued at in the months to come.

AusSuper had already lifted its stake from about 14 per cent, and after buying shares throughout last week through broker Macquarie Capital, as reported by DataRoom, its position moved from 16.5 per cent to between 17 and 18 per cent by Friday.

For a deal to succeed, the view is that almost all the investors need to turn up and vote in favour, including the retail investors with 30 per cent of the stock.

The proxy votes should be in by Tuesday.

Some think there’s a slim chance that the bidders could get lucky. But the growing view is the deal lacks enough support.

Many believe if the deal fails, where shares worth 75 per cent of the register or more are not in favour of the transaction, there’s too much riding on it for Brookfield and EIG to walk away.

But there’s experts in the market who continue to scratch their heads over how the parties can make a takeover bid work from a financial perspective.

Brookfield does have history in switching a buyout structure from a scheme of arrangement, where it requires a vote, to a takeover bid, where it buys enough shares directly on market to gain control.

The Canadian private equity firm did this when it bought the country’s second largest private hospital operator Healthscope after local rival BGH Capital amassed a significant holding in its quest to win the company.

But the challenge for Brookfield this time is that it is not bidding alone.

EIG’s funding package has been described as fragile at best, and complex, so obtaining debt for a recut transaction could be tricky, particularly in a high interest rate environment where funding costs have moved significantly since the buyout proposal was first announced last year.

EIG will buy Origin’s APLNG stake in the transaction, while Brookfield keeps the energy retail business as it prepares to outlay about $20bn to position it to transition the business to renewable energy.

Breaking the company up and selling off parts would be significant from a tax leakage perspective – in the billions of dollars.

EIG has to lead the bid if Origin does not want to be stuck with APLNG, otherwise it would trigger pre-emptive rights for the other owners of APLNG, which could see a part owner like ConocoPhillips exercise its option to buy more.

The board has excused the bidders of its obligations not to trade shares straight after the vote happens if it fails, which suggests it does not necessarily want to stand in the way of a deal unfolding

But it won’t be able to recommend an offer that is lower.

And then there’s the Australian Takeovers Panel.

If AustralianSuper blocks the bid and the suitors come back with a lower offer, the investor could take it to the panel on the grounds that the suitors said their earlier offer was best and final.

With proxy votes now in, a clearer picture should be emerging whether the deal succeeds.

Shares in Origin on Monday continued to fall to $8.54 before the close.

If it doesn’t, the talk is there’s too much riding on it for the buyers to simply walk away and a hostile bid will arrive before Christmas.