Bid for Origin likely a winner
Brookfield in ‘takeover’
THE $18.4bn takeover bid for Origin Energy is “very likely to succeed”, according to CLSA, which views the deal as a knockout offer.
Origin shares are up 35.5 per cent to $7.87 – the highest since January 2020 – and the $9 per share offer from Brookfield and EIG marked the consortium’s third offer after negotiations kicked off in August.
A “takeover by Brookfield/ EIG at 55 per cent premium is very likely to succeed,” CLSA analyst Daniel Butcher said. “We view the deal as a knockout offer. The conditions are fairly standard – due diligence, ACCC, FIRB – so we believe the risks to the deal becoming binding are quite low.”
Brookfield has pledged to spend $20bn funding Origin’s firmed renewables investments through to 2030, but CLSA sounded a note of caution questioning where the valuation upside would emerge for the bidders.
“Both bidders seem rock solid in their interest. But we find it hard to understand the level of value they see.”
Brookfield lobbed two takeover bids for AGL Energy earlier this year and its Origin play signals any interest in the Mike Cannon-Brookes’ backed rival has evaporated.
“This deal makes a further takeover bid for AGL by Brookfield/Grok look very unlikely,” Mr Butcher said.
Origin Energy plans to recommend a $18.4bn takeover offer from Brookfield and EIG, marking one of the sector’s biggest buyout bids at a time of surging profits for the company’s gas business.
The $9 per share bid would see Origin split into two and follows an earlier indicative proposal from the consortium to acquire Origin for $7.95 cash per share on August 8. The bidders then made a further pitch at $8.70 to $8.90 a share with Origin’s board taking part in initial talks, which led to the $9 per share bid, up 16 per cent on its initial proposal.
The proposal from the consortium proposes that ultimately Brookfield would acquire Origin’s energy markets business comprising electricity and gas retailing and EIG’s MidOcean unit would acquire the integrated gas business, which includes the prized APLNG export plant in Queensland.
The bid to buy Origin Energy’s power retail and supply business might face hurdles from the competition regulator given the Canadian company’s ownership of Victoria’s electricity transmission operator AusNet, MST Marquee said.
Looming government intervention in the domestic gas market may distort the earnings outlook, creating problems for Brookfield and EIG.
Origin’s board has entered into an exclusive agreement with the bidders and intends to grant due diligence and ultimately back the deal.
The offer is pitched at a 54.9 per cent premium to Origin’s last closing share price of $5.81 on November 9 and a 56.3 per cent lift on the three-month volume weighted average price of $5.76 per share on November 9.