The world is racing into the next chapter of the twenty-first century industrial revolution as we switch to electricity to drive vehicles and totally transform marketing in big parts of the retail sector.
Out of that revolution will emerge the equivalents of Apple, Microsoft Amazon and others that dominated the previous chapters.
Amazing as it might seem in this chapter, Australia owns 20 per cent of one of the top candidates to duplicate the big past winners. What’s not amazing, indeed it’s totally consistent with our past, is that we are about to sell in the early stages.
And of course, the buyer (Brookfield) is a global institution that has been brilliantly snapping up components of the looming revolution, including a major move into smart meters that form part of the revolution.
Just three years ago, Origin Energy directors encountered the wrath of our institutions when Origin invested $500m to buy 20 per cent pf the UK based Octopus group, capitalising at it at $2.5bn. Then Origin invested another $200m to maintain its 20 per cent in Octopus.
Today, Octopus is worth around $16bn and is on track in three years to exceed $20bn, which would make it worth more than the $19bn value that Brookfield is placing on Origin.
On that basis, the Origin’s Octopus investment would be worth around a quarter of the bid price.
I can’t emphasise enough that in forging ahead in this chapter of the revolution Octopus is taking risks, and it may fail, but there is clearly the potential for Octopus to join the $100bn club over the next decade in which case Brookfield would have secured the Origin Australian assets for nothing. Octopus may also disappoint, and large amounts of additional capital will be required on the journey.
Very skilfully AustralianSuper acquired 14 per cent of Origin and with markets down it will be very tempting for trustees to take the cash rewards for members, especially as it is likely that if the offer is rejected then Origin shares will fall.
Accordingly, by all the conventional investment rules AustralianSuper must sell but in the national interest. I hope they look at their fund’s size and say: “We are unlikely to again get an opportunity to be part of a world player in a global transforming industrial revolution. Let’s go for it and maybe announce we will buy more Origin shares if they fall”. I will forgive them if they take the easy and no risk path and sell.
But the new chapter of the revolution maybe even bigger than previous chapters because we’re going to change the fuel of the world from petroleum based products to electricity.
That means non-carbon power generators and retailers will be akin to the petroleum giants of past generations. Naturally home electricity also booms but unlike previous energy providers the networks that deliver the power will also be able to monitor consumers usage and, with permission, advise them on the selection of cars appliances and a multitude of other goods including food.
In Australia, Telstra understood this revolution better than most and planned to go into electricity retailing in combination with its telecommunications network.
But it became apparent that Telstra also needed to be a power generator, and new chief executive Vicki Brady was not prepared to take that step. She pulled the plug. Octopus made the reverse decision and are emerging as a major wind power generator in the UK.
Brookfield (and Octopus) understand how artificial intelligence can absolutely transform retail marketing via power networks and their smart meters.
Octopus bought up a series of small UK power retailers and their customer bases, often at token prices when the retailers were in trouble. More importantly, it owns the platform.
The Octopus proprietary customer service platform, Kraken, automates the energy supply chain. Kraken is currently contracted to support more than 40 million customer accounts in 10 countries, including the US and Origin in Australia. In addition, it supports Octopus Energy’s 9.7 million retail energy customer accounts.
Octopus estimates that the total global addressable platform licensing market in the medium term is over one billion meter points. Octopus are targeting of 100 million customer accounts by 2027 – a rise of 150 per cent on current levels and 10 per cent of the global market. This is truly an enormous play for Australia.
It will take skill for the platform provider to lock in part of the rewards for the marketing side of the operation, but Octopus has a clear vision.
The 280-page independent report by Grant Samuel meticulously valued the existing Origin assets, but could only manage a few pages on Octopus.
The real decision facing Origin shareholders is whether to take the cash value now, or take the opportunity to participate and win big from the next chapter of the industrial revolution.
That should have been the main focus of both the report and director's communication to shareholders. Many Origin shareholders will prefer the cash in hand, while others will prefer to take the risks involved.
What is sad is that the real debate has not yet started.
More Coverage
Virgin rules out ex-Qantas exec Jones as next CEO
Virgin Australia has sensationally moved to end speculation about the airline’s next chief executive, declaring ex-Qantas executive Paul Jones is not in the running.
Wind farm fury pitting mate against mate in the bush
Farmers are warning rural communities are being torn apart by the march of wind turbines across Australia’s paddocks.