It may be Thanksgiving in the United States this week, but there’s one thing arbitrage fund managers based there won’t be giving thanks for and that’s how things are playing out with Origin Energy.
On Tuesday, despite proxy votes all being overwhelmingly in favour of the $16bn buyout proposal for the energy retailer and gas producer by Brookfield and EIG, shares in Origin closed 2.9 per cent lower at $8.28.
The thinking behind the move is that it is US-based arbitrage funds offloading shares in Origin ahead of the vote on November 23 - the day of the US holiday.
Arbitrage funds make profits by trading in and out of a stock and frequently target companies subject to corporate activity to capitalise on any upside that may come out of it, making a bet that a takeover occurs and pocketing the profit from the upside of when the deal completes.
It’s estimated that arbitrage funds account for up to about 5 per cent of the Origin Energy register.
They are selling because of the timing of the vote falling on the day of their holiday, which they won’t want disrupted by any unpleasant outcome, causing shares in Origin to crash.
AustralianSuper has amassed 17.5 per cent of the stock and is opposed to the Origin Energy buyout by Brookfield and EIG at $9.53 per share, valuing the target’s equity at about $16bn.
Market observers believe the bidders have an uphill battle gaining enough support for the vote to succeed while the largest shareholder is not on their side, needing 75 per cent of those who vote to be in favour.
While fund investors and retail investors typically follow the recommendations of proxy houses, which have already put their votes forward, there needs to be a massive turnout of voters for it to get across the line.
AustralianSuper sees more value in Origin, which is the justification behind its decision to vote against the deal, but the understanding is that last year, when the suitors were considering the deal, it was open to a buyout plan by the bidders.
But that was in a different environment when earnings - and the group’s share price - were far lower. They were at $5.22 in October last year ahead of the proposal that was announced to the market in November.
The company has prospered on the back of rising energy prices due to the cost of the energy transition to renewables and the war in Ukraine with Russia pushing the oil price higher.
It was also before AustralianSuper announced a restructure in December, where the Australian Equities Team became a stand-alone function lead by Shaun Manuell.
AustralianSuper has called in its own investment banking adviser to offer assistance, Lazard, while Origin is working with Barrenjoey and Jarden and the bidders are advised by Citi, JPMorgan and UBS.
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