Pressure grows for Brookfield and EIG to lob new Origin bid as Octopus locks in fresh deal

Calls for the Brookfield-EIG $18.7bn offer for Origin to be increased have grown louder after Octopus Energy, in which it has a stake, signed another mega deal.

Canadian giant Brookfield and EIG are under more pressure to increase their $18.7bn bid for Australia’s largest electricity and gas retailer after the UK energy giant that Origin was an early investor in, struck a deal to rapidly expand its Japanese presence.

The future of Origin Energy is seen as a defining moment for the potential of Australia to rapidly wean its $2.5 trillion economy off its coal dependency. But Origin investors are pushing the consortium to increase its bid, insisting the value of the Australian company has materially increased since a deal was struck in March.

The deal cleared a major hurdle this week when the Australian Consumer and Competition Commission gave it the green light, despite lingering antitrust concerns. The regulator said the public benefit of accelerating Australia’s energy transition outweighed any concerns about competition.

In a deal that will intensify some shareholder calls, Octopus – the UK’s second largest energy company that has grown rapidly from its foundations as a technology company – said it has struck a deal with Tokyo Gas to manage three million customers via its Kraken platform. The deal has the scope to be increased to 10 million customers.

Origin first bought a 20 per cent slice of British conglomerate Octopus Energy in May 2020, and has since piled in more than $700m.

Other investors in Octopus include Al Gore, who purchased a 13 per cent stake in Octopus in 2021 £438m ($845m) – valuing the company at more than £3bn.

Origin’s investment initially attracted little attention but Octopus’ rapid growth has resulted in analysts scrambling to understand how it affects the valuation of the Australian giant.

Tokyo Gas is the first company in Japan to licence Octopus’ platform, which has grown rapidly due to its capacity and ease in managing customer accounts across different services such as electricity, gas and broadband internet.

Octopus said the platform now manages about 40 million customers after deals with Origin and French giant EDF. Octopus aims to have 100 million accounts on the platform by 2027.

Tokyo Gas chief executive Shinichi Sasayama said the use of the Kraken platform would drive growth.

“This system will help us to achieve our goal of providing reliable, sustainable and affordable energy to our customers across Japan,” he said.

“With this new support, we will continue to develop various electricity rate plans more swiftly than ever before, and strive to provide new values through services that are closely aligned with our customers’ needs.”

Investors already angling for a higher bid from Brookfield and EIG said the Tokyo Gas announcement cemented their views that a revised bid was justified.

“The valuation of Origin looked good but the fundamentals have changed. The Octopus deal is good news for their cashflows and shareholders like us will be looking for that to be reflected in the offer,” said one Origin shareholder, who declined to be named as he was not authorised to talk to the media.

Origin’s share price reflects a broad feeling that Brookfield and EIG will revise its offer. Origin earlier this year accepted an offer from Brookfield and EIG that values the retailer at $8.85 a share, but it continues to linger around $9.21 a share.

Macquarie in September said it believed a fair value for Origin was around $10 a share.

Brookfield and EIG have declined to comment on the push from some shareholders for more value, but The Australian understands the consortium believes its offer is fair value when considering the impact on shareholders of the vast spending required to develop renewable energy generation assets if Origin remains a public company.

The internal view of the consortium has some support. Morgan’s analyst Max Vickerson endorsed the valuation put forward by Brookfield and EIG. Mr Vickerson, however, conceded Brookfield and EIG would have to raise the offer as Origin’s largest shareholder, AustralianSuper, has publicly declared the buyout offer too low.

“We feel the current price reflects favourable comparisons to peers and we continue to feel it offers good value for shareholders. We therefore keep our target price in line with the bid price, but we note that there is a reasonable chance that the buyers could increase their offer to satisfy AustralianSuper and other shareholders who might vote against the offer,” Mr Vickerson said.

Brookfield and EIG must sway 75 per cent of Origin’s shareholders, but AustralianSuper and Perpetual hold 15 per cent of the company, leaving little wriggle room for the consortium.

Mr Vickerson said he believed the offer from Brookfield was fair when considering the toll if the consortium deal does not materialise.

“We see major challenges for its energy markets division as the company increases capital investment in future years while reducing phasing out reliance on its legacy coal generation asset,” he said.

Brookfield has promised to spend between $20bn and $30bn on renewable energy generation assets. Origin is unlikely to be able to match that sum if the deal isn’t completed.

A date for the shareholder vote hasn’t been announced. Origin on Tuesday said it would in the coming weeks release details and a report by an independent expert about Brookfield and EIG’s bid.