ACCC finalises Origin ruling as $18.7bn deal set for make-or-break period
The ACCC will this week rule on Brookfield and EIG’s $18.7bn takeover of Origin Energy – a critical deal if Australia is to meet its ambitious transition target.
The Australian Consumer and Competition Commission is finalising its ruling on Brookfield and EIG’s $18.7bn offer for Origin Energy, a decision that is likely to kickstart a make-or-break period for the future for the country’s largest electricity and gas retailer.
The future of Origin is widely seen as a watershed moment for Australia’s energy transition, as Brookfield promises to spend between $20bn and $30bn to develop much-needed renewable energy generation projects.
In a critical milestone for the deal, the ACCC will rule on the bid on October 10 — with industry executives indicating a decision is too close to call.
“If the ACCC approves it, I think it will be a conditional approval,” said one senior industry source.
Both Brookfield and EIG have offered a spate of commitments, designed to allay apparent concerns from the regulators about the possibility of a competitive edge.
Brookfield’s ownership of AusNet, Victoria’s principal electricity transmission network, is widely seen as the critical potential inhibitor, and the ACCC has highlighted the possibility that Origin could secure access to transmission infrastructure that gives it a commercial advantage.
AusNet is one of just five electricity distribution networks in Victoria, and one of three gas distribution networks in the state.
Brookfield – which will acquire the retail and generation assets of Origin – has said it will strengthen the ring-fencing of AusNet to ensure this doesn’t happen.
The ACCC could decide it will only give the green light to the deal if Brookfield divests AusNet, which would be opposed by Brookfield.
A blanket veto by the ACCC is expected to trigger an appeal by Brookfield and EIG, a process that is expected to take six months — echoing the rejection by the competition regulator of ANZ’s $4.9bn deal for Suncorp’s banking arm.
A potential six-month extension would complicate the deal for Origin even further.
Before an appeal will be concluded, Origin will report its half-year results — which analysts expect to show a further rebound in profitability — while Octopus Energy (the UK’s second largest energy retailer and in which Origin holds a stake) is expected to continue its rapid growth.
Strong results from Australia’s largest energy retailer and further expansion from Octopus is likely to stoke the hesitancy of Origin shareholders to approve the transaction should Brookfield and EIG succeed in its appeal.
Several prominent Origin shareholders have already indicated they do not support the offer from Brookfield and EIG.
Origin earlier this year accepted an offer from Brookfield and EIG that values the retailer at $8.85 a share. The shares are currently trading around $8.74, near a recent high of $8.89 — indicating shareholders believe the consortium will have to return with a revised offer.
Perpetual has also declared the $18.7bn bid too low, suggesting Brookfield and EIG will struggle to secure sufficient support for the deal as currently proposed.
To succeed, the bid requires the support of more than 75 per cent of votes cast. AustralianSuper and Perpetual hold more than 15 per cent of Origin, leaving little wriggle room for Brookfield and EIG.
But a six-month delay would leave shareholders with a conundrum.
“Origin could report stellar results in 2024 or we could be in the Global Financial Crisis mark II,” said one industry executive.
Global market sentiment has soured substantially in recent days, with US benchmark 10-year bond yields climbing to 4.68 per cent, its highest point since 2007 amid posturing from policymakers of potential further interest rate rises.
The possible deal looms large over Australia’s energy transition. If Brookfield and EIG can clear the hurdles, Australia is likely to accelerate its transition away from fossil fuels.
But if Origin stays a public company, Origin is unlikely going to be able to spend as much on new renewable energy generation.
Australia has legislated a target of having renewable energy generate more than 80 per cent of the country’s electricity by the end of the decade, a target that Canberra is not currently on course to meet.
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