Origin Energy shares surge after regulator clears Brookfield’s $9.8 bln bid

Origin Energy shares experienced a significant surge of 5.3% after receiving clearance from the Australian Competition and Consumer Commission (ACCC) for a A$15.35 billion ($9.76 billion) acquisition deal led by Brookfield Corp. This approval marks a crucial milestone in the acquisition process for Origin Energy, the country’s second-largest power generator.

The ACCC’s decision was based on the belief that this purchase would accelerate Australia’s transition towards renewable energy and potentially lead to a more rapid decrease in greenhouse gas emissions. This endorsement highlights the positive impact that the acquisition could have on the country’s sustainable energy goals.

The deal, however, still requires approval from shareholders, with a minimum of 75% of votes cast at a scheme meeting necessary for its completion. Australian Super, the largest investor, has already increased its stake to 14% and expressed confidence in the undervalued nature of Origin Energy shares. While this could potentially cause some complications for the deal, it also demonstrates the faith that investors have in the company’s future prospects.

Perpetual, another major Australian fund manager and Origin shareholder, has reportedly urged Brookfield and its partner, U.S. private equity firm EIG, to consider raising their offer in order to secure the acquisition. These discussions reflect the interest and competition surrounding Origin Energy, with various parties recognizing its value and potential.

The bidding consortium, led by Brookfield, has welcomed the ACCC’s approval and is eager to progress the transaction. While they have declined to comment further, their positive response indicates their commitment to the acquisition and their belief in the benefits it will bring.

Origin Energy shares experienced a significant boost, reaching A$9.19 in early trading, well above the A$8.91 per share price offered by the consortium in March. This increase in share price is fueled by speculation that a higher offer may be forthcoming. Analysts note that the buyers have shown persistence thus far, leaving room for potential negotiations.

This acquisition is currently the second-largest buyout underway in Australia, following Newmont Corp’s $16.7 billion offer for Newcrest Mining. It is a significant development in the Australian mergers and acquisitions landscape, which has experienced a 25.7% decline in activity compared to the same period last year, according to LSEG data.

Under the terms of the consortium deal, Origin Energy will be divided into two separate businesses. Brookfield will acquire the energy markets arm, which includes electricity generation and electricity and gas retail businesses. EIG’s MidOcean Energy, the other consortium partner, will take control of Origin’s integrated gas business. This division allows for a focused approach in managing each aspect of Origin Energy’s operations.

The ACCC closely scrutinized Brookfield’s ownership of AusNet Services, a transmission company with electricity and gas distribution networks based in Victoria. Analysts had identified this as a potential concern for the regulator. To address these concerns, Brookfield has committed to maintaining two separate management groups for Origin and AusNet, ensuring no overlap between the two entities. Additionally, Brookfield is prohibited from selling more than 10% of either Origin or AusNet to a single party in the future. These commitments aim to prevent any conduct that could favor Origin or disadvantage its competitors.

Brookfield plans to house the energy markets business within its global transition fund, which is recognized as the largest private fund worldwide focused on the transition to net-zero emissions. This aligns with Origin Energy’s commitment to sustainability and further emphasizes the positive impact this acquisition could have on Australia’s renewable energy sector.

Overall, the approval from the ACCC for the acquisition of Origin Energy by the Brookfield-led consortium is a significant step forward. It not only demonstrates the potential for a more sustainable energy future in Australia but also highlights the value and attractiveness of Origin Energy as an investment opportunity. With shareholder approval still pending, the positive response from investors and the ongoing discussions surrounding the deal indicate a promising future for Origin Energy and its stakeholders.