How Brookfield and EIG’s $20bn deal for Origin Energy collapsed

Once seen as inevitable, Brookfield and EIG Partners’ bold bid for Origin collapsed quickly after some misfortune and some missteps.

For months, Brookfield and EIG Partners’ deal for Origin Energy appeared inevitable – in danger only if Australian regulators decided to veto the deal.

When the competition tsar in October waved the deal through, the consortium appeared set to seal one the country’s largest M&A deals and accelerate the country’s transition away from coal. But Brookfield and EIG’s near $20bn offer collapsed on Monday as the consortium failed to secure enough support from Origin shareholders, a result that raised few eyebrows after the deal swung from seemingly infallible to inevitable defeat in just a few months.

The demise of the Origin buyout is a bitter blow for EIG, but worse for Brookfield.

The deal for Australia’s largest listed energy company came just a year after Brookfield’s public pursuit of AGL Energy with billionaire Mike Cannon-Brookes also failed.

After that, Origin was supposed to be its signature energy transition investment.

But interviews with nearly a dozen sources close to the transition and investors show the deal was scuppered by misfortune and several minor but consequential missteps. Representatives for Origin and the consortium declined to comment.

Brookfield and EIG secured less than 69 per cent support from shareholders for their deal, as AustralianSuper used its influence to oppose the deal, and sources said the deal was as good as dead the moment the superannuation giant decided to publicly declare its opposition.

The failure to lock in AustralianSuper’s support has spurred criticism, but sources close to the consortium said the super fund shifted throughout the process.

The Australian in November reported that AusSuper had considered joining the consortium after initially rejecting an approach from Brookfield and EIG to join the bid back in 2022. “AustralianSuper were a seller at the start of the process, then by July they were interested in joining the consortium, and then they were out and would not sell,” said one source familiar with the thinking of the consortium partners.

“People can say the consortium should have had a better read on their intentions but they jumped around a fair bit, from being a seller to one that was increasing its stake and refusing to sell.

“It is hard to read behaviour when it is oscillating so much.”

EIG chief executive Blair Thomas. Picture: Jane Dempster/The Australian.

But while AustralianSuper dominated the minds of Brookfield and EIG executives, it perhaps lost sight of the broader sentiment, which had begun to turn. Brookfield and EIG’s approach came just as Origin was recovering from a tumultuous time in Australia’s energy markets that saw the energy company report an annual loss of $1.4bn.

But as 2023 ticked on, Origin had turned a corner and the share price was steadily improving. “People forgot where Origin’s share price was when Brookfield and EIG made its first approach of $8.81 a share.

Back then it was trading at less than $6 and the price looked good. Then they had to jump through the various regulatory hurdles and by then the premium wasn’t looking quite as good,” said one source close to the transaction.

By March, Origin’s share price was trading well above $8, and Australia’s market began pushing for a higher offer.

After the ACCC endorsed the deal shares in Origin began trading about $9 a share.

But Brookfield continued to hold the line, insisting its then $8.81 a share offer was fair and indicating it would not move, much to the frustration of some.

“The deal was never happening at $8.81, and everyone knew it. Brookfield and EIG refused to bump and it put the deal behind the eight-ball and I’m not sure it ever recovered,” said a source close to the transaction.

Sources familiar with the thinking of the consortium said the duo were keen to see the findings of the independent expert report, which eventually estimated Origin to be worth up to $9.48 a share.

Brookfield quickly responded and raised its offer to $9.53 a share.

But optimism that the offer would be a knockout blow was quickly eroded when AustralianSuper within hours declared it would oppose the transaction – causing shock and anger within the consortium.

Moving to revive the deal, EIG’s Partners’ chief executive Blair Thomas made an emergency trip into Sydney, where he gave interviews to the media designed to sway investors and pressure AustralianSuper.

In now infamous comments, Mr Thomas declared the consortium had a “plan B and a plan C” and AustralianSuper should make a rival offer for Origin or get out of the way – a forceful public strategy that differed from the largely private negotiations until then.

For some investors, Mr Thomas’s comments caused outrage; for others it was a sign that there could be a more lucrative offer around the corner.

“Those comments did not play well. There were investors that refused to sell because they did not like that tone, and it did little to sway retail shareholders who might have been hesitant to sell an Australian company,” said one investor who sided with the consortium.

Attention will now turn to whether Brookfield revives its bid. It has warned that it will first evaluate the impact of recent government policies designed to rapidly accelerate the deployment of renewable energy into the National Electricity Market.

Brookfield may need a new partner. Sources say it is only interested in Origin’s energy markets business. EIG was going to acquire Origin’s 27.5 per cent stake in Australia Pacific LNG. 

Originally published as How Brookfield and EIG’s $20bn deal for Origin Energy collapsed