Origin Energy investors back revised offer from Brookfield consortium

An $18.2bn takeover offer for Origin Energy has edged one step closer after investors backed a revised deal from a Brookfield-led consortium.

An $18.2bn takeover offer for Origin Energy has edged one step closer after investors backed a revised deal from a Brookfield-led consortium, easing market uncertainty that government intervention may have scotched a buyout from proceeding.

The consortium of Brookfield and EIG trimmed its offer to buy Origin after months of due diligence and uncertainty about the impact of Labor’s intervention on gas prices.

A bid was lowered to $8.90 a share after the duo previously offered $9.00 a share in November, with a scheme of arrangement offer remaining indicative and non-binding.

Origin shares soared by as much as 14 per cent and closed up 12.7 per cent or 89c at $7.90.

One major institutional shareholder said it backed the latest bid.

“The revised offer is not materially different,” Yarra Capital Management head of equities Dion Hershan told The Australian.

“We are supportive and believe it is a strong outcome for shareholders.”

Origin said the revised pitch “has the potential to deliver significant value to shareholders”.

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.

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, a pledge reaffirmed on Wednesday by the North American investment giant.

“Brookfield is committed to investing in the energy transition in Australia and we see Origin playing a leading role in helping Australia meet its legislated climate and energy goals,” Brookfield Asia-Pacific chief executive Stewart Upson said in a statement.

EIG also gave a bullish outlook after the revised deal was announced.

“Energy transition informs every decision we make, and this transaction perfectly highlights societies twin goals of decarbonisation and energy security,” EIG chairman R. Blair Thomas said.

Companies including Origin are caught in a pincer as they work to wind down giant coal plants and accelerate a switch to renewables amid historically high wholesale electricity prices.

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.

The Australian government complicated the landscape for energy investors with its December legislation capping gas prices in the domestic market for a year, and giving itself power to intervene in gas markets on a permanent basis.

The intervention was slammed by Australian LNG producers, and drew concern that it could derail the Brookfield-led takeover.

Under the new proposal announced, holders of more than 100,000 shares would receive $4.33 plus $US3.19 a share above that threshold, reflecting Origin’s 27.5 per cent stake in Australia Pacific LNG.

The deal is conditional on Origin advising shareholders to vote in favour of the revised deal.

Other conditions require a scheme implementation deed with the ACCC, FIRB and other regulatory approvals, completion of full due diligence, Origin entering into no material acquisitions or divestments; and the power giant undertaking certain hedging requirements.

The price would be reduced by any dividends paid by Origin prior to completion, including the 16.5c a share fully franked dividend announced on February 16.

A 4.5 cents per month ticking fee, accruing on a daily basis, will be payable to the extent completion of the scheme is delayed beyond 30 November 2023.

Brookfield embarked on the Origin deal after walked away from acquiring AGL Energy, rejected twice with takeover bids.

The takeover play also underscores the ongoing appetite of EIG for big gas deals after it was foiled in its attempt to buy a 10 per cent stake in the Australia Pacific LNG project with ConocoPhillips pre-empting the $2.1bn sale. EIG also failed to buy Santos in a $13bn-plus deal back in 2018.

However, EIG’s MidOcean unit in October bought stakes in four of Australia’s largest LNG projects in a $US2.15bn deal, marking the latest shake up in the booming sector.

Origin last week reported a statutory half-year net profit of $399m, up from a $131m loss in the previous corresponding period.

Underlying profit fell $224m to $44m, with Origin saying that higher earnings from its integrated gas business were offset by lower earnings in energy markets, along with an income tax expense associated with unfranked distributions from Australia Pacific LNG.

Origin in January upgraded its full year earnings outlook from underlying EBITDA of $500m-$650m to $600m-$730m.