All eyes on Origin Energy as rumours swirl of failed takeover

Origin owns a 27.5 per cent interest in Australia Pacific LNG, supplying 30 per cent of east coast demand and exporting LNG to Asia.

All eyes will be on Origin Energy as it reports its results on Thursday amid chatter that EIG Partners is close to walking away from a joint deal with Brookfield to buy the energy retailer and gas producer.

The US-based EIG launched an $18.4bn buyout for Origin in November last year with Brookfield, equating to $9 per share. The pair had been carrying out due diligence before coming back with a formal offer but doubts have been emerging that a deal will take place after more than six weeks with no news.

Origin had offered the consortium exclusive talks for at least five weeks and four days, and had granted due diligence access for up to eight weeks.

Shares in Origin closed at $7.08 on Wednesday.

While Brookfield remains motivated, EIG still needs to find the funds to pay for the deal and talk in the market is that it is close to backing out of the purchase.

It is understood there have not been other parties interested in taking the integrated gas business that EIG was to buy, and attempts to source additional funds globally has not been easy for EIG.

Already, both parties are known to have been in talks with Origin about lowering their original $9 a share offer, with the government’s introduction of price caps on the east coast gas markets changing the value proposition on the table since the deal was first announced.

But sources say the pair would have to come up with a price close to the original offer to be successful.

Origin’s chairman was heavily praised after the approach was made for achieving $9 a share, but now it could bedifficult for the company to retreat on price.

For investment banks, there’s a lot riding on the transaction.

Should it fall over, it would be the second major buyout over the past year that has been announced but has not made it to completion after Kohlberg Kravis Roberts backed away from its $20bn plan to buy Ramsay Health Care.

UBS and Barrenjoey have been on both proposed transactions, with Barrenjoey this time on defence and UBS with the suitor, and with the Ramsay deal it was the other way around.

Not only is finding equity hard for EIG but debt is also expensive, and the market is not conducive right now to M&A, let alone those of a large scale.

Origin owns a 27.5 per cent interest in Australia Pacific LNG, supplying 30 per cent of east coast demand and exporting LNG to Asia, and other owners of APLNG are not thought to be keen to take on more of the asset.

ConocoPhillips has a 47.5 per cent interest while China’s Sinopec owns 25 per cent and would unlikely gain government approval to buy more.

Origin said the consortium made an offer on August 8 for Origin at $7.95 per share before lifting its bid to $8.70, $8,90 and then finally $9, equating to $18.4bn including debt.

The offer was a 54.9 per cent premium to Origin’s share price of $5.81 on November 9.

A failed deal could mean Origin opts to demerge its APLNG stake, although some question whether the market would be interested in owning a portion of that asset on its own.

Others believe a demerger wouldnot eventuate, and have also dismissed the likelihood of a partial sale of Origin.