Canadian funds management giant Brookfield Asset Management is leading a surprise $18.4 billion takeover bid for Australia’s biggest utility Origin Energy, with plans to split the business in two and spend another $20 billion by 2030 on renewables and storage to make it a “green retailer.”
Brookfield is offering $9 a share for Origin and intends to retain its electricity and gas retailing business, while bid partner MidOcean Energy will take over the LNG business.
Brookfield’s investment is part of the Brookfield Global Transition Fund, the world’s largest fund dedicated to the energy transition, and it says it plans to spend an additional $20 billion in renewable and firming capacity by 2030.
Earlier this year it paid $18 billion to take over the transmission and network company Ausnet. Its bid for Origin will require FIRB and regulatory approval.
“The energy transition in Australia is a once in a generation investment opportunity but that investment needs to be accelerated materially in order to meet Australia’s legislated climate goals,” Brookfield Asia Pacific CEO Stewart Upson said in a statement.
“Brookfield has the global renewable power expertise and access to capital to support Origin’s transition strategy. Our business plan includes additional investment of A$20 billion by 2030 to build the required renewable capacity and storage and position Origin as Australia’s leading ‘greentailer’.
“Together, Brookfield and Origin can support Australia’s multi-decade transition journey and accelerate our progress towards its emissions-reduction targets.”
Bidders make multiple approaches
The two bidders say it is not the first approach. They made an offer for Origin in August pitched at $7.95 a share and then came back on September 18 with an indicative price of $8.70 to $8.90 a share.
Now, with a new bid at $9 a share, which is more than 50 per cent higher than its closing price on November 9, Origin has agreed to enter into a confidentiality and exclusivity agreement with the bidding consortium, and indicates it would recommend an offer at that price.
“The Board intends to grant the Consortium the opportunity to conduct due diligence to enable it to put forward a binding proposal,” the company said. “Due diligence is expected to complete within eight weeks.”
The bid for Origin continues a remarkable series of developments in Australia’s electricity markets, triggered by the falling cost of renewables and storage, the growing uptake of rooftop PV, the global energy crisis and intervention from big players such as the activist billionaire Mike Cannon-Brookes.
On top of this, a new federal Labor government has embraced a target of 82 per cent renewables by 2030, although the hard work will be done by state governments, including Victoria (a 95 per cent renewables target for 2035), Queensland (an 80 per cent renewables target by 2035), and NSW, well into its renewable infrastructure plan.
Brookfield was partner with Cannon-Brookes in rejected AGL bid
The bid for Origin is a little ironic given that Brookfield was a partner with Cannon-Brookes in the proposed and ultimately rejected $8 billion bid for AGL, and was instrumental in derailing that company’s proposed demerger.
Now Brookfield intends to bid for the more valuable Origin, including a split in that company’s assets, although it can be argued that Origin’s LNG business is more easily separated from its electricity and retailing business, than AGL’s coal and renewable assets.
Origin has already embarked on its exit from coal, and its accelerated closure of its last coal asset, and the country’s biggest coal plant, the 2.8GW Eraring coal generator, has triggered an accelerated response from the NSW and federal governments to ensure enough transmission and replacement capacity is in place.
“This proposal confirms that Origin, its operations and management team represent a highly strategic platform, well-placed to benefit from the energy transition,” Origin chairman Scott Perkins said in a statement.
CEO Frank Calabria said Origin has executed a number of important strategic initiatives over the past year that he said have strengthened the balance sheet, sharpened the company’s strategic focus and positioned it to prosper from the energy transition.
“We believe Origin is in a strong position to lead the energy transition, capture opportunities and create value for shareholders.”
Bidding partner wants to focus on LNG
MidOcean Energy is also arguing that its purchase of Origin’s principal LNG assets, a 27.5% interest in the APLNG venture, is also good for cutting emissions.
“We believe LNG is vital to achieving global energy transition targets,” said De la Rey Venter, the CEO of MidOcean Energy.
“We are actively seeking to acquire interests in high-quality projects in the Asia-Pacific region and elsewhere that can benefit from our extensive LNG experience.
Origin’s integrated gas business—which would build on MidOcean’s existing investment in Australia—will help enable broader decarbonisation efforts in the region by supplying critical natural gas and LNG to the domestic and global markets for decades to come.”
Origin is being advised by Barrenjoey Capital, Jarden and Herbert Smith Freehills. UBS and Citi are advising the Brookfield consortium.
