Nov. 10 (Reuters) – Origin Energy Ltd. (ORG.AX), Australia’s second-largest power producer and energy retailer, supported an A$18.4 billion ($11.8 billion) buyout offer from a consortium led by Canada’s Brookfield Asset Management, the companies said on Thursday.
If successful, the acquisition would be the biggest deal in Australia this year and one of the largest private equity-backed buyouts of an Australian company, according to Refinitiv data.
The price of an Origin share rose by almost 40% in morning trading to A$8.14, but it lost some of those gains in early afternoon trading to end up 34.6%.
As investors and analysts evaluated the dangers associated with a deal of this size and in such a crucial industry, the shares were last trading at $7.82.
The transaction needs the approval of the Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission (ACCC) in order to move forward.
Origin opened its books to the consortium after it increased its offer to A$9 per share in cash, a nearly 55% premium to Origin’s most recent close of A$5.81. If no higher offer materializes, the company said it would advise shareholders to support the proposal.
Early in August, the consortium made Origin a cash offer of A$7.95 per share, which was later increased to A$8.70 to A$8.90 per share in mid-September, according to Origin.
If the scheme of the arrangement, which needs 75% shareholder support, is not implemented by May 15 of next year, the offer will be increased by 3c per share per month, according to a statement from Origin.
“It’s a knockout offer in terms of price, a 55% premium,” said According to Refinitiv, Argo Investments’ Andy Forster is the company’s senior investment officer and Origin’s sixth-largest shareholder.
“Government intervention and what it entails for the energy markets are subjects of some uncertainty. Although there is immediate uncertainty, they are clearly considering the long term.”
The offer comes at a time when the Australian government is considering capping gas prices in order to placate businesses and homeowners who are suffering from skyrocketing energy costs, which are partly caused by the conflict in Ukraine.
The aim is to divert gas into the domestic market in order to increase supply and lower prices. Origin’s APLNG is in the firing line, along with two other east coast LNG exporters.
“The interests of both bidders appear to be unwavering. But we find it hard to understand the level of value they see,” In a Thursday note to clients, CLSA analyst Daniel Butcher wrote.
The offer from Brookfield follows its earlier rejection of a $3.5 billion takeover bid for AGL Energy (AGL.AX), Australia’s largest power producer.
“Our confidence in Origin’s prospects underscored our engagement with the Consortium and delivered a material increase on their initial offer,” Scott Perkins, the chairman of Origin, stated in a statement.
According to the preliminary proposal made on Thursday, MidOcean Energy, the other consortium partner, would take over Origin’s integrated gas business, including its 27.5% stake in Australia Pacific LNG (APLNG), while Brookfield would acquire Origin’s energy markets business.
Energy investor EIG supports MidOcean, which paid $2.15 billion for Tokyo Gas’s stake in four integrated LNG Projects in Australia in October.
In an effort to hasten the transition to cleaner energy, Origin has sold its gas exploration assets and accelerated the planned shutdown of the nation’s largest coal-fired power plant.
“Our business plan includes an additional investment of A$20 billion by 2030 to build the required renewable capacity and storage and position Origin as Australia’s leading ‘greentailer’,” Stewart Upson, the chief executive officer of Brookfield for Asia Pacific, said in a statement.
The offer was made through the Brookfield Global Transition Fund, which was co-founded by Mark Carney, a former governor of the Bank of England, and raised $15 billion earlier this year.
Reference: https://www.reuters.com/markets/deals/australias-origin-energy-gets-118-bln-buyout-offer-brookfield-2022-11-09/
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