Many lessons in the protracted Origin takeover battle

Brookfield and BHP both have long term plans to achieve significant rewards from the global electrification boom.

Brookfield is a world leader in electrification data potential, and the assets of Origin Energy are very important to its long term global strategy.

As I explained on Tuesday, BHP looks to exploit global electrification via copper and nickel mining.

But neither the directors of Origin nor the independent bid investigator, Grant Samuel, detailed why Origin is so important for Brookfield’s long term global ambitions.

That absence highlights the sharp division between the contrasting aims of Origin shareholders, and directors of a wide range of listed companies need to learn the Origin lesson.

Origin Energy boss Frank Calabria. Picture: John Feder/The Australian

In Origin, as in most listed companies, there are a substantial number of shareholders who are looking for a short term ride and are very happy to sell out on a takeover or in some other market event and take a nice profit.

There is nothing wrong with that behaviour, but it is in total contrast to those who are on the share register looking for big, long term gains because the company in which they have invested (such as Origin) has a set of unique growth opportunities.

Taking those opportunities will usually require capital and risk, and long term shareholders are prepared for this.

One of the reasons why the Australian share market has performed so badly in capital values over the last five years is that all too often the directors and independent investigators have accepted bids based on the attitude of short term shareholders rather than the long term view.

Origin is a rare instance where there is a big difference between the potential long berm value and the current market related price. That’s why the Origin bidder Brookfield will not give up, and why Origin’s major and long term shareholder AustralianSuper is simply not interested in low ball Brookfield bids.

The Origin potential arises first from the consumer goods marketing potential of its own domestic database, but that potential is dwarfed by the possibility that its 20 per cent stake in the UK based global Octopus company has the ultimate potential to be worth the current Brookfield bid price, albeit that potential carries considerable risk.

Naturally, the enormous potential of the Octopus and Origin opportunities makes the Canadian giant Brookfield almost desperate to gain Origin at a value that does not take into account this potential.

EIG CEO Blair Thomas. Picture: Jane Dempster/The Australian

I can’t emphasise enough that an enormous number of things would need to go right for Octopus and Origin to realise that potential, and again it requires capital and risk.

Directors who are sitting on this potential growth powder keg need to detail its potential and what shareholders are giving up by taking the quick dollar – albeit that quick dollar might turn out to be the right move.

Similarly, the investigating accountant offered no extensive examination of the potential of Octopus. Shareholders were completely in the dark unless they had done their own research or had read my commentary under the heading “We risk getting out of global transformation too early” on October 24.

Given the absence of any official communication on this potential, it is remarkable that 30 per cent of the Origin shareholders voted against the Brookfield proposal. Of course, AustralianSuper which has 17 per cent of Origin dominated that 30 per cent. AustralianSuper and other institutions have has done their own research and didn’t need the directors or my help. Nevertheless, it was a truly remarkable result.

And now the directors appear to be running around trying to attract some other scheme, but it's still directed to the quick dollar shareholders. I am sure that there are no side deals in this morass. Nevertheless, to end speculation, ASIC should undertake a detailed examination of the affair.

And given this information chasm and the different objectives of Origin shareholders, directors will need to be very careful in future actions, or they will find themselves personally defending themselves in the courts. Anger is rising.

I have nothing but praise for AustralianSuper, who has woken up to the fact that in a high interest rate environment, providing the necessary benefits to members will require investing in growth situations.

It understands that those investment situations with the greatest potential often have the greatest risk. And arguably Origin is in that category.

The Origin investment is a minute part of the total AustralianSuper portfolio, so it can afford to take that risk on behalf of members.

And the fact that it is prepared to cop all sorts of media blasts for taking a strong stand is encouraging because that’s exactly what it needs to do in future long term and short term Origin-style battles.

But in pursuing long term opportunities, the superannuation funds need to have the required skill base. And finally, Grant Samuel did a brilliant overall analysis of Origin, but it did not understand the difference between current market value investors and those who think Octopus/Origin has great potential.

It would have been very useful for all shareholders, including AustralianSuper to have had 20 or 30 pages of Grant Samuel analysis on the potential of Octopus. It’s possible that analysis would have downgraded the expectation potential, but it was never attempted.

All future takeover assessments need to examine future long term potential and the benefit of the target to the bidder. That’s the lesson from Origin.