ACCC to probe blockbuster Origin Energy takeover
Regulatory concerns loom as a major hurdle for Brookfield and EIG’s $18.4bn takeover of Origin Energy.
The competition regulator will launch a public review of Brookfield and EIG’s $18.4bn takeover pitch for Origin Energy, as the spotlight falls on market concentration concerns should a deal get the green light from the power giant’s board and shareholders.
The Australian Competition and Consumer Commission has already been contacted by the bidders and expects to start an investigation once a formal submission has been lodged.
“We have been contacted by the parties to the proposed acquisition,” an ACCC spokeswoman said. “We are awaiting a submission in due course, but expect to conduct a public review where we will carefully consider any likely competitive impact resulting from the proposed transaction.”
The bid to buy Origin may face hurdles from the competition regulator given Brookfield’s ownership of Victoria’s electricity transmission operator AusNet and a 50 per cent stake in smart metering company Intellihub.
Approval from the Foreign Investment Review Board for the Canadian and US bidders may also loom as an issue given the strategic nature of Origin’s assets, JP Morgan said.
“The biggest risk is likely the approvals process,” JP Morgan analyst Mark Busuttil said. “While due diligence will more than likely pass in our view, the federal government may not want to see Origin privatised given ongoing security around elevated energy costs to consumers.”
ACCC chair Gina Cass-Gottlieb on Thursday expressed some concern with competition in the energy market.
“We are also concerned and focused upon the question as to challenges to competition at the retail level when there is a situation where high retail prices means that smaller retailers are more challenged in terms of their operations and are not as actively seeking customers because of the increased costs they are facing,” Ms Cass-Gottlieb told Senate Estimates on Thursday.
Regulatory risk appeared the main obstacle to a deal sailing through, Morgans analyst Max Vickerson said.
“The market seems to be assuming a fair amount of regulatory risk -- FIRB and ACCC approvals -- as well as any other potential market interventions that the government is contemplating,” Mr Vickerson said.
“It’s currently trading with a healthy margin below the bid price. It’s difficult to quantify the risks given the focus on the gas and electricity markets at the moment so it’s hard to know how much of a risk margin is reasonable.”
Still, the 55 per cent premium offered by Brookfield and EIG for its $9 a share non-binding offer was unlikely to be topped, Mr Vickerson added.
“I was surprised at the premium for the bid, so I imagine Brookfield and EIG won’t face a competing bid at that price.”
Brookfield was twice rejected by AGL Energy for takeover bids lodged with Mike Cannon-Brookes, but the hefty premium attached to Origin also suggests a higher share price valuation for AGL, according to JP Morgan. Both Origin and AGL have 4.5 million customers.
“Assuming AGL and Origin’s retail and generation businesses are equivalent, we would highlight the implied value for Origin’s energy markets business means an equity value of $13-14 a share for AGL after deducting the company’s debt,” Mr Busuttil said.
Origin’s shares were last down 3.6 per cent or 28c to $7.55 after soaring 35 per cent on Thursday, while AGL rose 3.6 per cent or 27c to $7.82.
A potential tax on gas and thermal coal producers may also dent the earnings outlook for Brookfield and EIG should they succeed, analysts say, with some form of Albanese government intervention in the market now expected.
The Grattan Institute’s Tony Wood said in the gas market the government was clearly set on targeting the LNG exporters, and Brookfield and EIG’s bid for Origin would have little bearing on what package of regulatory or tax measures the government eventually decides.
Mr Wood said while the east coast LNG gas exporters accounted for only a small percentage of the total volume of gas consumed domestically as most was exported.
They were, however, the “swing suppliers”.
“Like most markets, the swing supplier often sets the price. So it has a disproportionate impact on the domestic market,” he said.
Mr Wood said it was clear that the government was intent on taking money from the gas producers and redistributing it to consumers.
“What surprises me is that the producers haven’t come up with a solution themselves. It’s not a question of whether or not the government is right (to intervene), they must know that it’s a political no-brainer, and that having prices at these levels is untenable.”