All eyes on Origin Energy as investors vote on Brookfield-EIG offer

The future of Origin Energy will be laid bare on Monday, with investors scrutinising the scale of the expected defeat of a $20bn takeover deal lobbed by suitors Brookfield and EIG.

The future of Origin Energy will be laid bare on Monday, with investors scrutinising the scale of the expected defeat of a $20bn takeover deal lobbed by suitors Brookfield and EIG as it targets a path to green power.

Origin will on Monday announce the results of a shareholder vote on whether to support Brookfield and EIG’s offer, worth around $9.39 a share – a deal that could accelerate Australia’s transition away from fossil fuels. With AustralianSuper, Origin’s largest shareholder, opposing the transaction, the deal is widely expected to fall short of the required support of 75 per cent of shareholders. However, the scale of the expected defeat could be illuminating.

The Australian last month reported that in previous proxy voting, the duo secured support from 70 per cent of shareholders who voted electronically, but voting was suspended just hours before a result was due to be announced, after the consortium announced a revised bid.

Sources close to the deal said the final result would be critical to Origin’s future, even if Brookfield did not return with another bid.

“If 70 per cent of shareholders turn out again, and 70 per cent of those have supported the transaction – then you have more than 90 per cent of capital once you exclude AustralianSuper voting for the transaction. It is going to be very hard for the board to keep two distinct shareholder groups – those that wanted to sell and AustralianSuper – happy,” said one senior market source.

“It is hard not seeing Origin’s share price falling, probably to less than $8, and if I’m a shareholder who wanted to sell at $9.39 then I’m going to be pretty upset with AustralianSuper.”

Market sentiment towards Origin is already likely to be sour on Monday after Brookfield warned investors that there was no guarantee that it would maintain its interest in Australia’s largest listed energy company if the vote failed, and it would consider the implications of government schemes to rapidly accelerate the deployment of renewable energy for any new bid.

Recent commitments from the Australian government to underwrite a massive expansion of renewable energy are widely seen as unfavourable to large players such as Origin.

Shares in AGL Energy have fallen nearly 10 per cent since the government announced its expanded Capacity Investment Scheme.

The government has proposed to implement a model for renewable that guarantees taxpayers will compensate a developer when the wholesale electricity price falls to low levels, in exchange for developers paying the government in the event prices pass a maximum threshold.

It remains unclear whether Brookfield’s comments are an attempt to sway votes.

In November, when Brookfield and EIG raised their bid, they also negotiated an option to return with an off-market takeover offer for Origin.

That offer for 100 per cent of Origin would be made within six months after any failed vote, and if any of the bidders bought more than 5 per cent of Origin’s shares. It would be subject to a lower minimum acceptance condition of just 50.1 per cent, reducing the capacity of AustralianSuper to scupper the deal.

But an overwhelming defeat for Brookfield and EIG would stoke concerns within the consortium and its bankers that it would struggle to navigate such a route, especially with a lower bid.

The prospect of Brookfield and EIG returning in the next six months is unlikely to be welcomed by Origin either.

The company, which first endorsed a takeover by the consortium more than a year ago, has made it clear it now wants a resolution of the saga. The Origin board recently rejected a revised Brookfield-EIG offer, saying the deal was too complex and incomplete.

Sources familiar with the internal discussions at the company said the board was concerned about the structure of the revised offer, particularly around tax matters.

Under the bid that Origin rejected, EIG would have purchased Origin in a deal worth $9.08 a share, and then Brookfield would have purchased the energy markets business and Origin’s 20 per cent stake in Octopus for $12.3bn.

But Origin is understood to have been concerned about how that $12.3bn would be reallocated to shareholders. Directors were also worried about how tax issues would be treated by the Australian Taxation Office and the prospect the issue could prolong the closing of the transaction.

“The board wanted to draw a close, and bring it to a head so life can go on. I think Origin would be better off taking a breather and getting on, but that may need a knockout blow,” said one source familiar with the thinking of the company.

Originally published as All eyes on Origin Energy as investors vote on Brookfield-EIG offer