Two global suitors vying for valuable Australian listed companies now face the prospect of having to amass shares on the direct market through takeover bids to gain control of their targets, rather than getting an agreed deal done through a shareholder vote.
On Thursday, Origin Energy’s suitors, Brookfield and EIG, increased their offer for the Australian energy company by $1.2bn, or 8.2 per cent, to $16.4bn or $9.53 per share from $8.81.
But in what was considered a highly aggressive play by the Lazard-advised AustralianSuper, it not only rejected the deal but raided the Origin register late Thursday to take its holding from 13.67 per cent to almost 15 per cent to block it after shares closed 6.6 per cent lower to $8.47 on the back of its opposition to the latest deal.
It suggests that if it went to a shareholder vote, where three quarter of shares voted needed to be in favour, it would not succeed.
Now the expectation is that Brookfield and EIG will likely walk away or switch to a takeover structure, with the current offer declared its “best and final”.
Meanwhile, over in Western Australia, Chilean lithium giant SQM faces changing its buyout proposal for Azure Minerals from a scheme of arrangement structure, where shareholders vote on the deal, to a takeover bid, where they instead buy shares directly on the market in a quest to gain control.
It comes after billionaire Gina Rinehart upset its plans to buy the business by raiding the register and amassing 18.9 per cent, while another billionaire, Chris Ellison, has bought more than 4 per cent.
The deal switches to a takeover bid if it gets voted down or a shareholder gains 19 per cent.
Mrs Rinehart earlier upset Albemarle’s proposal to buy Liontown Resources when she raided the stock and amassed 19 per cent, prompting SQM to agree to the terms.
TAKEOVERS BACK
The Australian market has not seen many takeovers for some time.
In the past, most were launched when a board was hesitant to engage, but the difference now is it’s activist shareholders spoiling takeover plans.
Brookfield and EIG have a scheme proposal they have committed to, with shareholders due to vote on November 23.
But should they opt for a takeover bid instead, it will be far more complicated for them and lack the same efficiency of a clean deal to buy the company as a whole, where the plan was to split the gas operations from the retail energy operation.
Firstly, takeover bids mean that funding is a lot more complicated for buyers, with the suitors having to stump up the funding ahead of time.
It means the target is worth less, so any takeover offer would be less as well.
In the case of Azure, if SQM can buy the lithium miner through a scheme of arrangement, shareholders get $3.52 per share, but if the deal is one by way of a takeover, they get $3.50.
With Origin, the latest offer is above the independent expert report range of $8.45 and $9.48 and comes after a lacklustre quarterly result from Origin.
AustralianSuper had the opportunity to buy shares when the stock was between $5 and $6 a year ago, but opted not to.
PLAN B
Yet it clearly seems its problem is the price, being a financial investor that had the opportunity to co-invest in the transaction early on by the suitors but turned it down.
If Brookfield and EIG do launch a hostile takeover bid for Origin to hopefully gain over 80 per cent, it’s likely to be when the share price falls.
Shareholders will still have the $9.53 offer price in their minds as to what they accept.
But if the share price falls to about $7, and the performance deteriorates, which is possible with energy prices soaring right now partly due to global geopolitical instability, an offer close to that number will no longer be on the table.
And there are hints that there’s a very real chance a takeover play could be Brookfield and EIG’s plan B.
Origin told the market today that certain amendments to the existing standstill arrangements have been made.
Under these arrangements, in the six months following an unsuccessful scheme vote, any acquisition by Brookfield or EIG of more than 5 per cent of Origin must be accompanied by a takeover bid with a 50.1 per cent minimum acceptance, launched within three months of the acquisition.
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