Brookfield, EIG set to sweeten Origin Energy offer

Origin Energy Managing Director Frank Calabria at the company’s offices in Barangaroo in Sydney. Picture: Britta Campion, The Australian

Canadian private equity firm Brookfield and its partner EIG are understood to be in the process of putting together a higher proposal to buy Origin Energy.

It comes after an earnings upgrade from the $16bn energy retailer and producer amid soaring energy prices and the release of an independent expert report.

It also comes after some shareholders have been lobbying for a price bump on the back of the company’s strong performance and outlook since the offer first landed.

Advisers working for the bidding consortium were understood to be hard at work on a revised offer on Thursday, as an independent expert report was released.

Independent expert Grant Samuel has valued Origin at between $8.45 per share and $9.48 per share at June 30.

Brookfield and EIG first approached Origin in August last year with an offer at about $7.95 per share, which was rejected, before lifting it to $9 a share.

After three months of due diligence, the offer was revised to $8.91 an Origin share, consisting of $5.78 in Australian dollars and $US2.19 per share to reflect the exposure of Origin’s Integrated Gas assets and cash distributions from its 27.5 per cent Australia Pacific LNG project.

Following currency adjustments, the offer on a like-for-like basis was $9.15 in March.

But deducting 36.5c per share of ordinary dividends paid in March and September, and adding 2.7c for an agreed ticking fee (a compensation for a lag of time), it now results in a $8.81 per share cash payment.

Origin chairman Scott Perkins said execution of Origin’s strategy will involve significant capital commitments to accelerate its transition to renewable energy, which was why the board was recommending the current bid.

Estimates are the cost for Origin to make the transition is between $20bn and $30bn.

Shares in Origin on Thursday closed at $9.22, taking its market value to $15.86bn.

Origin said the independent expert report had said that while a valuation as at the implementation date of December 18 could not be reliably determined in advance, a ‘roll forward’ of the valuation to that date assuming a return on equity of, say, 10 per cent, could theoretically increase Origin’s value by about 40c per share (to the low end of the valuation range) and a 6 per cent rate in line with the ticking fee would add about 25.4c.

This was assuming the business achieves its budget for the 2024 financial year, pays no dividends and there was no change to long-term cash flows or economic conditions.

Origin Energy said it would recommend the consortium’s deal it entered into in March to buy the business, subject to the independent expert concluding it was in the best interests of Origin shareholders and in the absence of a Superior Proposal.

After the deal was cleared by the Australian Competition and Consumer Commission on October 10, the Origin share price closed at $9.21 per share, 40c above the cash payment shareholders would receive under the agreed deal, Mr Perkins said in the deal documents.

The agreed buyout relies on a shareholder vote to proceed and will happen on November 23 in Sydney.

To get over the line, 75 per cent of shares voted need to be in favour of the transaction.

Working for Origin are Barrenjoey and Jarden, while its law firm is Herbert Smith Freehills.

The bidding consortium is advised by Citi and UBS.

Origin Energy counts AustralianSuper as its largest shareholder with 14 per cent.

In August, Origin Energy reported a $1bn statutory profit for the year to June 30 compared to a $1.4bn loss in the previous corresponding period.

It upgraded its profit forecast in May to between $950m and $1.2bn earnings before interest, tax, depreciation and amortisation from $600m to $730m earlier.