Brookfield plots green path with $18bn Origin bid

Brookfield has promised a $20bn cash pile to deliver Origin Energy’s transition to green energy.

Brookfield has pledged a $20bn injection to fuel Origin Energy’s green ambitions after pouncing on the power giant with an $18bn takeover offer, winning an early nod from the board and backing from several high-profile shareholders.

After teaming up with Mike Cannon-Brookes in two unsuccessful takeover offers for AGL Energy earlier this year, Canadian private equity giant Brookfield Asset Management has switched focus to rival operator Origin, combining with US partner EIG for a “knockout” $9-a-share bid.

The deal, the third offer since talks started in August, includes a plan for Brookfield to invest an extra $20bn in Origin through to 2030 to build new renewable supplies and back-up energy capacity.

Origin’s board has entered into an exclusive agreement with the pair and intends to recommend the deal to shareholders, should a binding offer be tabled after eight weeks of due diligence.

Brookfield Asia-Pacific chief executive Stewart Upson. Picture: Jane Dempster

The buyout would result in Origin being 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.

Companies including Origin face a difficult challenge as they work to wind down giant coal-fired generation plants and accelerate a switch to renewables amid historically high wholesale electricity prices.

The green plan would let Brookfield tap Origin’s gas power plants as back-up power for boosting its solar and wind generation this decade.

“It will enable us to develop renewable power … at a much more accelerated rate than anywhere else in the market,” Brookfield Asia-Pacific chief executive Stewart Upson told The Australian.

“The value for us is being able to invest at a fair price and being able to develop a low-cost power supply for consumers.”

The $9-per-share bid follows an initial offer from the consortium of $7.95 on August 8.

A further pitch at $8.70 to $8.90 a share was tabled, leading to Origin’s board taking part in initial talks which led to the current offer, some $2bn or 16 per cent higher than the initial tilt.

The buyout was pitched at a 55 per cent premium to Origin’s closing price of $5.81 on Wednesday before the bid was disclosed.

Yarra head of equities Dion Hershan. Picture: David Geraghty

Two of Origin Energy’s big investors gave initial backing, arguing it reflected the underlying value of the business.

Top-10 shareholder Yarra Capital Management said the substantial premium made it a deal Origin’s board had to engage with.

“These are serious bidders that are natural types of owners for these assets,” Yarra head of equities Dion Hershan told The Australian. “With the value that’s been put forward in the approach, it makes sense for the Origin board to engage. We’re supportive of the way they’ve approached it and we think it makes sense.”

Allan Gray managing director Simon Mawhinney.

Another institutional investor, Allan Gray, said the proposal was a good result for shareholders.

“This is a price where I think it strikes a good balance between the interest of buyers and sellers,” Allan Gray managing director Simon Mawhinney said. “I think it‘s pitched at a sensible level.”

The $18.4bn pitch was “very likely to succeed”, according to broker CLSA. “We view the deal as a knockout offer,” CLSA analyst Daniel Butcher said. “The conditions are fairly standard – due ­diligence, ACCC, FIRB – so we believe the risks … are low.”

Origin Energy chairman Scott Perkins.

Origin chairman Scott Perkins said its energy business was poised to benefit from the move to green energy.

“This proposal confirms that Origin, its operations and management team represent a highly strategic platform, well-placed to benefit from the energy transition. Our confidence in Origin’s prospects underscored our engagement with the consortium and delivered a material increase on their initial offer,” he said.

Yarra said energy investors had been too short-term in their approach and risk appetite.

“We’re a longstanding shareholder. And we have for a very long time thought public markets won’t recognise the real value of the assets in Origin,” Mr Hershan said.

“The assets were both quite diverse, but also quite volatile. And what you can say with certainty are public markets are infatuated with short-term outcomes. People were fixated on daily electricity prices and daily oil prices and true value was not recognised.”

Still, the bid to buy Origin may face hurdles from the competition regulator, given Brookfield’s ownership of Victoria’s electricity transmission operator AusNet.

Receiving 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.

Looming intervention in the domestic gas market could also distort Origin’s earnings outlook, potentially creating problems for Brookfield and EIG, MST Marquee said.

“I would also be very interested to understand any potential ramifications on price from government intervention over the next couple of months too, which could clearly materially change the earnings outlook for both parts of the business,” MST analyst Mark Samter said.

Mr Upson said he expected the Albanese government to make a sensible decision on intervention.

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.

Origin shares rose 35 per cent or $2.02 to $7.83.