Brookfield and EIG are understood to be in the process of launching a hostile takeover bid for Origin Energy by Christmas.
Sources have told DataRoom that the offer will be at a lower price than the $9.53 per share offer that is currently on the table through a scheme of arrangement structure, where shareholders vote on the transaction for it to gain approval.
Under the takeover bid structure, the suitors buy shares directly on the market.
It is understood that the takeover bid will be put forward by both Brookfield and EIG within the coming weeks, subject to a minimum acceptance of 50.1 per cent.
It means the race will be on for the two bidders to amass shares after AustralianSuper recently lifted its interest to just under 15 per cent from 13.67 per cent, outlaying up to $182m to buy shares through Macquarie Capital.
The bidders were recently released from their standstill agreement, which means they can now buy at least 5 per cent of the company if they also launch a takeover offer.
The move comes after AustralianSuper – the country’s largest superannuation fund – rejected the sweetened $16bn deal to buy Origin, which was an 8.2 per cent or $1.2bn increase from its original offer of $8.81 per share, maintaining the offer undervalues the company.
As reported by this column on Thursday last week, AustralianSuper had been offered the opportunity to be part of EIG and Brookfield’s deal, but declined the chance.
Part of the problem is that, for AustralianSuper’s equities team, is that few compelling opportunities exist where they can reinvest the money on the listed market in companies of the same calibre as Origin when it comes to getting exposure to energy and infrastructure and achieve the same returns.
The justification for a lower offer through the takeover bid structure is that the company is not worth as much if it cannot be purchased by the suitors in its entirety.
A likely outcome is the bidders only secure between 80 and 85 per cent at the most, with AustralianSuper’s blocking stake and 3 per cent shareholder Perpetual possibly voting against the deal.
Funding is likely to be more complex and expensive.
Also, the game plan for Origin and EIG was always for EIG to take Origin’s gas business while Brookfield would own the energy retailer.
However, should the bidders gain majority control and can assert themselves on the company’s board, a move to split the energy generator and retailer will trigger capital gains tax costs from selling one part.
Shares in Origin closed 9.9c higher to $8.64, with about $200m stock trading in recent days.
Sources say that arbitrage funds are capitalising on the latest activity, with Macquarie said to have traded about 6 million shares by Tuesday’s market open for an investor, which was not thought to be AustralianSuper.
Brookfield’s motivation to buy Origin comes after it tried unsuccessfully last year to acquire its listed rival AGL Energy, a deal fiercely opposed by activist investor Mike Cannon-Brookes.
The appeal is to profit from the country’s energy transition from coal-fired power towards more clean forms of energy, namely solar and wind power, to limit pollution into the air with the aim of reducing global warming.
Brookfield estimates the cost is $20bn.
It also is happening as energy prices are soaring on the back of the Ukraine war with Russia that has pushed up the oil price, caps on east coast gas prices and energy shortages in Australia, with air polluting coal-fired power stations being wound down.
The modus operandi of the Canadian private equity powerhouse is to work on a friendly basis with company boards rather than raid registers with a blocking stake, likely the reason why it never amassed a major holding before launching its buyout proposal for Origin.
Originally, the plan of EIG and Brookfield was to try harder to convince AustralianSuper to take part in its deal.
But laws surrounding truth in takeovers removed that option when the shareholder made a statement about its intentions, saying the offer undervalued the company, and it would vote against the deal on November 23.
Brookfield and EIG, whose chief executive R Blair Thomas arrived in Australia this week to rescue the buyout plan, called their buyout offer “best and final” and it would have required three quarters of voted shares approving the transaction for it to succeed.
Meanwhile, proxy firm ISS said the offer was “higher than even the most opportunistic view of the independent expert” and shareholders had the choice to take the proposal “versus taking on the risks, uncertainty, volatility and cost of the energy transition themselves”.
Advising Brookfield and EIG are Citi, JPMorgan and UBS, while Origin is advised by Barrenjoey and Jarden and AustralianSuper Lazard.
It is believed Jarden and Barrenjoey will each gain at least $10m in fees should the deal succeed.
The scheme booklet says Origin has over $60m in transaction costs, contingent on the outcome.
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