Origin Energy Ltd., Australia's No. 2 power producer and energy retailer, backed an A$18.4 billion ($11.8 billion) buyout offer from a consortium led by Canada's Brookfield Asset Management, the companies said on Nov. 10.
If successful, the takeover would rank as one of the biggest private equity-backed buyouts of an Australian company, and would be the largest deal in the country this year, Refinitiv data shows.
Brookfield and its partner MidOcean Energy, backed by private equity firm EIG, both said they see big opportunities in Australia to invest in the transition to cleaner energy and see Origin's assets as the way to get in.
"Together, Brookfield and Origin can support Australia’s multi-decade transition journey and accelerate our progress towards its emissions-reduction targets," Brookfield's Asia Pacific CEO Stewart Upson said in a statement.
Origin's share price soared as much as 40% but the stock gave back some of the gains to close up 35% at A$7.83 as investors and analysts assessed the risks involved in a deal of this size in a crucial sector.
The deal requires Australian Competition and Consumer Commission (ACCC) and Foreign Investment Review Board (FIRB) approval to proceed.
Origin opened its books to the consortium after it raised its offer to A$9 per share in cash, a near 55% premium to Origin's last close of A$5.81. The company said it would recommend shareholders vote in favor of the proposal if no higher bid emerges.
The offer will be increased by 3 cents per share per month if the scheme of arrangement, which requires 75% shareholder support, is not implemented by May 15 next year, Origin's statement said.
"It's a knockout offer in terms of price, a 55% premium," said Andy Forster, senior investment officer at Argo Investments, Origin's sixth largest shareholder, according to Refinitiv.
"There's a bit of uncertainty around government intervention and what that means in terms of energy markets. It's a short term uncertainty, but they're obviously taking a long term view."
The bid comes just as the Australian government is considering imposing price caps on gas to appease manufacturers and households suffering from soaring energy prices, partly due to the Ukraine war.
Origin's Australia Pacific LNG (APLNG), along with two other east coast LNG exporters, are in the firing line to divert gas into the domestic market to boost supply and bring down prices.
"Both bidders seem rock solid in their interest. But we find it hard to understand the level of value they see," CLSA analyst Daniel Butcher wrote in a note to clients Nov. 10.
Litigation risk
Other than regulatory approvals, a potential risk for the bidders is a multi-billion dollar claim APLNG is facing from a company called Tri-Star Group over rights to some coal-seam gas assets and royalties, which APLNG is fighting in a state court.
The claim relates to about 20% of APLNG's proved and probable reserves, Origin said in its 2022 annual report.
Tri-Star's Australia manager Andrew Hackwood said on Nov. 10 the company is "confident of its contractual rights and will continue to pursue the litigation."
The bid from Brookfield comes after it was rebuffed earlier this year when it led a $3.5 billion takeover offer for Australia's top power producer, AGL Energy.
Under the indicative proposal submitted on Nov. 10, Brookfield would acquire Origin's energy markets business, while MidOcean Energy, the other consortium partner, would take control of Origin's integrated gas business, including its 27.5% stake in APLNG.
MidOcean is backed by energy investor EIG and in October paid $2.15 billion for Tokyo Gas's stake in four Australian integrated LNG projects.
Origin has been looking to speed up its transition to cleaner energy, accelerating the planned shutdown of the country's biggest coal-fired power plant and selling its gas exploration assets.
"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,'" Upson said in a statement.
The bid has been made through the Brookfield Global Transition Fund, which is co-run by former Bank of England governor Mark Carney and raised $15 billion earlier this year.
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