Brookfield and EIG reduce bid for Origin Energy

Origin Energy’s board have unanimously recommended the revised takeover offer of A$18.2bn to shareholders, which comes as the consortium’s phase of exclusive due diligence is set to enter its fourth month.

Brookfield Asset Management, in partnership with MidOcean Energy, the global LNG platform owned and managed by EIG, has revised its take-private bid for the Australian Securities Exchange-listed energy generator and retailer Origin Energy.

The consortium’s latest conditional and non-binding offer of A$8.90 ($6.07; €5.72) cash per share for Origin represents an enterprise value of A$18.2 billion, down from its November offer of A$9 cash per share, which represented an enterprise value of A$18.4 billion and saw the consortium enter a phase of exclusive due diligence.

In a statement responding to the revised bid, Origin Energy said its board would unanimously recommend that the company’s shareholders vote in favour of the revised proposal, in the absence of a superior proposal.

“The Origin board considers the revised proposal has the potential to deliver significant value to shareholders, and accordingly, intends to continue to progress discussions with the consortium, including the negotiation of a scheme implementation deed, while assessing the execution considerations and risks associated with the revised proposal,” the company said.

The revised proposal includes a partial payment in US dollars, whereby any shareholder with more than 100,000 Origin shares will receive a combination of A$4.334 and A$3.194 for each share over that threshold.

The consortium said this reflected the underlying exposure of the energy company’s LNG assets, in particular the cash distributions from its 27.5 percent interest in Queensland LNG business Australia Pacific LNG (APLNG).

The reduction in the offer price follows increased regulatory uncertainty in the Australian gas market, following an intervention by the federal government in December 2022 to introduce a temporary price cap for natural gas of A$12 per gigajoule, with the aim of helping to address high energy prices for consumers and businesses.

In a statement on the revised bid, Brookfield’s regional head of Asia Pacific Stewart Upson said: “[The firm] is committed to investing in the energy transition in Australia and we see Origin playing a leading role in helping Australia meet its legislated climate and energy goals.

“We intend to invest a further A$20 billion by 2030 to build new renewable capacity and storage for Australia, reducing costs over time while maintaining the reliability of the grid during this crucial phase of investment. We are pleased to have reached this milestone and look forward to progressing to a signed scheme implementation deed.”

Should the deal complete, the firm’s investment in Origin is expected to be led by the $15 billion Brookfield Global Transition Fund, alongside institutional partners.

According to a statement from MidOcean Energy, the company is investing to “create a high-quality, global ‘pure play’ integrated LNG company that leverages EIG’s extensive investing experience in the global LNG sector”.

EIG chief executive R Blair Thomas added: “Energy transition informs every decision we make, and this transaction perfectly highlights society’s twin goals of decarbonisation and energy security. We view LNG as the key transition fuel that will foster the security of supply and price stability necessary while the energy complex is changed to low and zero-carbon alternatives.”

“APLNG has an important role to play in the transition and will serve as the foundation for our larger LNG ambitions that we are pursuing via MidOcean Energy.”

Private capital’s pivotal role

Brookfield’s initial Origin bid followed its failed bid for Australian energy giant AGL Energy last year. Speaking at the Australian Financial Review’s 2022 Infrastructure Summit soon after Brookfield’s previous offer for Origin, Upson said the latter, in comparison with AGL, was “more on the front foot” with its transition plans, which would give the firm “a running start” in seeing that transition through.

At the time, he also stressed the importance of private capital in getting companies like Origin over the line with their transition plans, noting: “Any company in this space that’s listed right now and is in this situation where they have a serious transition task, has a challenge because they’re traditionally dividend yield stocks.

“They now have this huge capital requirement and, generally, because they have this transition, they tend to have high emissions and most institutional investors don’t hold them anymore… They are in this real catch-22 [and] private capital takes that one issue away.”