Christmas may come early for bankers with Brookfield & EIG’s $18.4bn Origin Energy bid

Origin Energy is a takeover target for Brookfield and EIG. Picture: Ian Waldie/Bloomberg

Brookfield and EIG’s $18.4bn buyout proposal for Origin Energy is one of the biggest jobs for deal makers of the year and should break the drought for big ticket completed mergers and acquisitions.

Kohlberg Kravis Roberts’ $20bn buyout plan for Ramsay Health Care in April never eventuated, while deals like Dye & Durham’s $3.5bn offer for Link Administration Holdings fell over.

Barrenjoey and UBS were on both proposed transactions.

Barrenjoey and Jarden have been hired by Origin Energy to advise on the $9 per share offer, while Brookfield is working with Citi and EIG is advised by UBS.

The offer that has won the parties due diligence means Brookfield has walked away from AGL Energy for good and has opted to pursue Origin Energy as an alternative.

Brookfield is known to have been eyeing up Origin Energy around May last year when shares were around $4, as reported by DataRoom in January, but instead turned its attention to Origin’s rival, AGL, with two offers, the latest valuing the company at $9bn or $8.25 per share, both rejected by the board.

AGL shares closed at $7.55.

Grok Ventures, the company of major shareholder and Atlassian billionaire co-founder Mike Cannon-Brookes, bid with Brookfield but the pair quitely parted company due to differing views.

Surging power prices has changed the game when it comes to what Brookfield would pay for Origin, as private equity funds look for ways to cash in on the energy transition, and some suggest that it has bullish earnings prospects for Origin over the next decade that could mean bad news for consumers when it comes to power prices.

Origin’s share price is at 2017 levels, and price growth depends on its ability to execute its growth strategy, which involves the challenging and risky task of pivoting the business towards renewable energy.

A view is that with the politics around the global energy transition, it may be easier for this to happen out of the public eye in private hands.

Origin has 4.2 million electricity, gas and LPG customers and owns a 27.5 per cent interest in Australia Pacific LNG, supplying 30 per cent of east coast demand and exporting LNG to customers in Asia.

Its share price staged a rally on the back of the increasing oil price, partly linked to fears of supply shortages in Europe due to tensions between Russia and Ukraine, reaching about

The consortium will break up the business, with EIG, bidding through its subsidiary MidOcean Energy, taking Origin’s integrated gas business.

Brookfield would buy Origin’s Energy Markets business through its Brookfield Global Transition Fund.

Origin said in a statement that 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 is a 54.9 per cent premium to Origin’s closing share price of $5.81 on November 9.

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

The deal that emerged from left field came after a number of buyouts last year in infrastructure and oil and gas, with the merger of Oil Search and Santos, Woodside with BHP Petroleum and the buyouts of Spark Infrastructure and Sydney Airport.

It will be interesting to see what regulators think from a competition and foreign investment perspective - last year Brookfield agreed to buy listed Victoria energy transmission network owner AusNet with backers for $10bn.

A higher interest rate environment makes a lot of targets no longer stack up for private equity at the price they would previously prepare to pay, so it seems Brookfield is investing plenty of equity into the offer.

Expensive debt has made deals in 2022 challenging to complete, as buyers try to batter down the price and owners will not readjust their expectations to the new environment.

Yet some believe that rival bidders could emerge for Origin, with energy giants Shell and Spain’s Iberdrola recently in the Australian market scouting for targets.

It’s likely to bring an end to Origin Energy’s $4.4bn play for CWP Renewables, for which it has been competing to buy with partner CDPQ.

Other CWP suitors are Iberdrola and QIC with AGL Energy.

Brookfield’s transition business plan for Origin includes the investment of an additional $20bn in Origin to help fund its transition strategy and build renewable and firming capacity over the period to 2030.

EIG is well known to the Australia market and to Origin. It made efforts to purchase a 10 per cent stake in APNLNG from Origin last year for $2.12bn, but shareholder ConocoPhillips instead took up its pre-emptive rights to buy the stake and the deal never happened.

In 2018, it bid for Santos through Harbour Energy, although the offer was rejected.