AGL ‘further behind’ Origin Energy: Brookfield

Origin is well ahead on decarbonisation and a very different business to AGL, says Brookfield, as it plans a $18.4bn takeover of the group.

Brookfield switched its attention to Origin Energy with a giant $18.4bn takeover bid after being rejected twice by rival AGL Energy.

Investment giant Brookfield said its latest takeover target, Origin Energy, was well ahead of rival AGL Energy in making a move away from coal and predicted more private money will flow to the electricity sector given substantial green funding needs this decade.

Canada’s Brookfield Asset Management saw two takeover bids for AGL rejected in February and March which led it to eventually change tack by approaching the power giant’s main competitor, Origin Energy, in August leading to a top offer of $18.4bn for a buyout.

Brookfield said the two businesses were very different, describing Origin as much further advanced with its decarbonisation goals.

“AGL has a large fleet of coal fired generation which obviously needs to transition at some point over time,” Brookfield Asia Pacific chief executive Stewart Upson told an infrastructure conference.

“It has arguably — up until recently at least — been further behind in its own internal plans on when that transition would occur. Whereas Origin has been a bit more front foot with that and has a detailed strategic transition plan and has given notice on Eraring for retirement.”

Brookfield and its consortium partner EIG kicked off a six-week period of due diligence on Origin a week ago with the target’s board indicating it would recommend a binding bid at the current $9 a share offer price.

The deal includes a plan for Brookfield to invest an extra $20bn in Origin through 2030 to build new renewable supplies and back-up energy capacity, described as helping solve part of the challenge for a big utility as it moves to green energy.

“Right now any company in the space that‘s listed right now is in this situation where they have a serious transition task that has a challenge because they’re traditionally dividend yield stocks. People own them because they want that yield. And yet they now have this huge capital requirement,” Mr Upson said.

“Generally because they have this transition, they tend to have high emissions and most institutional investors don‘t hold them anymore. So they’re in this real catch-22. Giving the availability of private capital takes that one issue away.”

The buyout would see Origin split into two. Brookfield would control Origin’s energy markets business comprising electricity and gas retailing while EIG’s MidOcean unit would buy the integrated gas business which includes the prized APLNG export plant in Queensland.

Receiving competition approval and Foreign Investment Review Board clearance may also pose a challenge given the optics of offshore companies taking control of one of Australia’s biggest gas and electricity companies as the Albanese government juggles intervention to ease mounting cost of living pressures.

FIRB confirmed it would examine the proposed deal.

“There will be a risk based analysis of that application,” FIRB chairman Bruce Miller told the AFR Infrastructure Summit.

The green plan would see Brookfield tap Origin’s gas power plants which could be used as crucial back-up power for boosting its solar and wind generation this decade.

Still, the ability to generate a strong return from developing renewables in Australia was also queried by several investment heavyweights at the conference.

AustralianSuper said clean energy opportunities were often better offshore than in the local environment.

“There’s an incredible amount of money wanting to get into it,” AustralianSuper head of infrastructure Nik Kemp said. “And that‘s why we can’t in a way because there’s so much money trying to get into renewables in Australia. It’s just so expensive.”

“The one thing that would be really helpful is just making sure that the whole system grows together. So whether it’s the gas baseload or transmission assets, they all have to grow at the same pace to ensure that their system is able to work with it. But at the moment all our renewables investments are offshore, because it’s so expensive here in Australia.”

Wilson Asset Management also said it was cautious on Australian renewables investment.

“If you think about greenfield infrastructure in renewables, that could be quite risky because capital expenditure could be much higher in this type of infrastructure assets,” Wilson Asset Management portfolio manager Dania Zinurova said.

Origin has 4.5 million customers and operates Australia’s biggest coal power plant — Eraring in NSW — along with a 27.5 per cent stake in the APLNG project in Queensland.