Brookfield and EIG’s MidOcean in A$18.4bn bid for ASX-listed Origin Energy

Brookfield’s Global Transition Fund will acquire Origin’s Energy Markets business, while MidOcean will take on the firm’s LNG assets.

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

The firms have offered A$9 ($5.79; €5.78) cash per share for Origin, representing an enterprise value of A$18.4 billion. The bid is currently an indicative, conditional and non-binding proposal, with the consortium now entering a phase of exclusive due diligence ahead of a potential binding offer.

Origin Energy said that its board would unanimously recommend shareholders vote in favour of the bid, should it proceed to a binding offer and in the absence of a superior proposal.

Under the indicative terms of the proposal, the consortium partners would split Origin between them. Brookfield would acquire Origin’s Energy Markets business, which includes its electricity generation and retail divisions, as well as its retail gas business.

Brookfield confirmed in a statement that its investment would be led by its $15 billion Global Transition Fund, alongside institutional partners. The firm said its plan for Origin would include the investment of an additional A$20 billion in the business “to help fund its transition strategy and build renewable and firming capacity over the period to 2030”.

MidOcean would acquire Origin’s Integrated Gas business, the prime asset of which is a 27.5 percent stake in Australia Pacific LNG, Australia’s largest producer of coal seam gas. ConocoPhillips holds a 47.5 percent stake in APLNG, with the remaining 25 percent owned by Sinopec. According to APLNG’s website, Origin is currently responsible for operating the APLNG gas fields in Queensland, as well as its main gas transmission pipeline.

Transition plans

In an August 2022 update, Origin said it expected underlying EBITDA in its Energy Markets business to be A$500 million to A$650 million in the 2023 financial year, an improvement on the A$365 million achieved in FY2022, with further growth expected in 2024. Gross profit from electricity in FY2022 fell by A$692 million to A$207 million, thanks to coal supply disruption leading to increased fuel costs and exposure to higher spot electricity prices with lower generation output. By contrast, gas gross profit increased by A$117 million to A$564 million, thanks to improved margins.

Origin said that APLNG revenue for the quarter ending September 2022 had increased by 64 percent on the corresponding quarter in 2021, to A$2.8 billion.

Origin published its first Climate Transition Action Plan at its AGM in August 2022, which included a new target to reach net zero across Scope 1, 2 and 3 emissions by 2050, as well as a target to reduce Scope 1, 2 and 3 emissions by 40 percent by 2030 from a FY2019 baseline. In the short term, the firm also announced a target to reduce Scope 1 emissions by 8 million tonnes between FY2021 and FY2023, which it linked to management remuneration.

Earlier in 2022, Origin announced plans to accelerate its exit from coal-fired power generation, submitting notice of its intent to close its Eraring Power Station by August 2025, forward from the previously planned date of 2032. It also said it would evolve its portfolio by increasing investments in renewable energy and storage.

MidOcean announced in October that it would acquire Tokyo Gas’s interests in a portfolio of four Australian LNG projects – Gorgon LNG, Ichthys LNG, Pluto LNG and Queensland Curtis LNG – for a total cash consideration of $2.15 billion. At the time, MidOcean said that deal marked the launch of its strategy to “build a high-quality, diversified, global ‘pure play’ integrated LNG company”.

EIG itself has also committed several billion dollars to multiple LNG projects over the last 20 years. De la Rey Venter, formerly of Shell, took over as chief executive of MidOcean in June 2022.

‘Once-in-a-generation opportunity’

In a statement to shareholders on Thursday, Origin said the latest bid followed two earlier lower offers from the consortium: an offer of A$7.95 per share that was made on 8 August, and another of A$8.70 to A$8.90 made on 18 September.

The A$9 per share offer represents an increase of 16 percent on Brookfield-MidOcean’s original bid and comes at a 54 percent premium to Origin’s closing share price of A$5.81 on 9 November.

Brookfield previously tried to acquire another of Australia’s large, listed energy generator-retailers, AGL Energy, in a consortium alongside Grok Ventures, the private investment vehicle of Mike and Annie Cannon-Brookes. AGL Energy successfully fought off that bid but further interventions by Grok, without Brookfield’s involvement, scuppered the company’s demerger plans and led to an accelerated timeline for the phasing out of its coal-fired power stations.

In a statement on the Origin bid, Brookfield Asia Pacific chief executive Stewart Upson said: “The energy transition in Australia is a once-in-a-generation opportunity but that investment needs to be accelerated materially in order to meet Australia’s legislated climate goals. Origin is a very high-quality business with a strong management team that, when combined with Brookfield’s large-scale capital and global renewable power development expertise, is uniquely placed to contribute significantly to Australia’s net-zero targets.”

MidOcean CEO Venter said his firm was “actively seeking” to acquire interests in “high-quality” LNG projects in the Asia-Pacific region and elsewhere, and that Origin’s integrated gas business would build on MidOcean’s existing investments in Australia and “help enable broader decarbonisation efforts in the region by supplying critical natural gas and LNG to domestic and global markets for decades to come”.