Origin Energy Shares Surge 5.3% as ACCC Clears $9.76 Billion Deal for Power Generator
Origin Energy’s shares experienced a significant surge of 5.3% on Tuesday following the clearance of a $9.76 billion deal by the Australian Competition and Consumer Commission (ACCC). The deal, led by Brookfield Corp, requires shareholder approval, even though it has received regulatory clearance. The ACCC stated that the acquisition of Australia’s second-largest power generator is likely to accelerate the country’s transition to renewable energy and result in a more rapid reduction in greenhouse gas emissions. Origin Energy acknowledged the ACCC’s approval as an important milestone in the acquisition process.
To proceed, the deal requires approval from 75% of votes cast at a scheme meeting. Australian Super, the largest investor, has already increased its stake to 14% and considers the shares undervalued. This raises the possibility of Australian Super forming a voting bloc that could potentially pose challenges to the deal. Analysts suggest that Perpetual, another major Australian fund manager and Origin shareholder, has urged Brookfield and its partner, U.S. private equity firm EIG, to consider raising their offer in order to secure Origin. However, representatives from Australian Super and Perpetual have not yet responded to requests for comment.
Meanwhile, the bidding consortium has expressed its satisfaction with the approval from the ACCC and aims to progress with the transaction without providing further comment at this time. Following the news, Origin shares reached a trading value of A$9.19, well above the A$8.91 per share price initially offered by the consortium in March, leading to speculation that a higher offer may be on the horizon.
The deal ranks as the second-largest ongoing buyout in Australia, falling only behind Newmont Corp’s $16.7 billion offer for Newcrest Mining, which is set to be voted on by investors later this week. However, it is important to note that overall mergers and acquisitions activity in Australia has decreased by 25.7% in the first three quarters of 2023 compared to the same period last year, according to LSEG data.
Under the terms of the consortium deal, Origin Energy will be split into two entities. Brookfield will acquire the energy markets arm, which includes the electricity generation, electricity, and gas retail businesses. On the other hand, EIG’s MidOcean Energy, the consortium’s partner, will take control of Origin’s integrated gas business.
The ACCC’s decision regarding the deal was closely watched due to Brookfield’s ownership of AusNet Services, a Victoria-based transmission company with electricity and gas distribution networks. Analysts had identified this ownership as a potential concern for regulators. To address this concern, the ACCC has required Brookfield to commit to having separate management groups for both Origin and AusNet that have no involvement with one another. Additionally, Brookfield will be prohibited from selling more than 10% of either company to a single party in the future. These commitments are intended to minimize the likelihood of conduct that could favor Origin or disadvantage its competitors, according to ACCC Chair Gina Cass-Gottlieb.
Brookfield plans to house the acquired energy markets business in its global transition fund, which is known as the world’s largest private fund focused on achieving a net zero-emissions transition.
In conclusion, Origin Energy’s shares surged significantly following the ACCC’s clearance of the $9.76 billion deal led by Brookfield Corp. The approval is seen as a major milestone in the acquisition process, but the deal will still need shareholder approval by 75% of votes cast at a scheme meeting. Australian Super and Perpetual, as major shareholders, hold significant influence and their positions could affect the outcome. The consortium’s bid to acquire Origin has generated speculation about a potential increase in the offer price. The transaction would split Origin into two businesses, with Brookfield acquiring the energy markets arm and EIG’s MidOcean Energy taking control of the integrated gas business. The ACCC’s approval was contingent on certain conditions to address concerns over Brookfield’s ownership of AusNet Services. These conditions include the establishment of separate management groups for Origin and AusNet, as well as restrictions on future sale of company shares. Overall, the deal is expected to accelerate Australia’s renewable energy transition and contribute to a more rapid decrease in greenhouse gas emissions.
