By Simon Johanson
Australia’s competition watchdog has approved the takeover of the nation’s biggest energy retailer Origin Energy by Canadian fund giant Brookfield and its consortium partner MidOcean, but the $18.7 billion deal still needs the backing of large shareholders who think the bid undervalues the company.
The Australian Competition and Consumer Commission (ACCC) said its decision on the deal was “finely balanced”, ultimately deciding in the consortium’s favour after a detailed review found the acquisition was likely to result in enough public benefit to outweigh competition concerns.
Brookfield has outlined ambitious plans to spend another $20 billion to $30 billion on renewable energy projects.
ACCC chair Gina Cass-Gottlieb said Brookfield’s proposed investment of between $20 billion and $30 billion to accelerate the rollout of renewable energy projects would lead to a more rapid reduction in Australia’s greenhouse gas emissions.
“We found that the public benefits and public detriments in this matter were finely balanced. Likely detriments, particularly anticompetitive effects from vertical integration, had to be weighed against likely benefits to Australia’s renewable energy transition,” Cass-Gottlieb said.
Under the deal’s terms, Brookfield will end up with Origin’s power generation and retailing division, which supplies about 4.5 million customer accounts. MidOcean Energy – a liquefied natural gas company formed by US-based global energy investor EIG – will acquire Origin’s interest in a Queensland LNG joint venture, Australia Pacific LNG.
Brookfield’s control of Origin, combined with its existing stake in electricity transmitter AusNet, raised concerns, particularly in Victoria where AusNet owns the state’s 6000 kilometres of high-voltage poles and wires. It allayed those concerns by agreeing to a “behavioural undertaking” to ringfence each energy business – housing them in separate offices with independent technology, boards and management teams. MidOcean’s existing Australian interests, a stake in coal seam gas company Queensland Curtis LNG, also attracted the ACCC’s attention.
Their high-stakes bid for Origin began last November, when the electricity retailer opened its books to its suitors after they lobbed a surprise $9-a-share bid to buy the company and divide its assets between them. Origin’s board eventually accepted an $8.91-a-share offer in a deal structured to increase the bid price by 4.5c a month if the completion was delayed beyond November 30 this year, valuing Origin at $18.7 billion, including debt.
“The consortium welcomes the ACCC’s announcement that it has authorised the proposed acquisition of Origin Energy. We look forward to progressing the transaction,” a short joint statement from Brookfield and MidOcean, issued on Tuesday, said.
Brookfield will end up with Origin’s power generation and retailing division, which supplies about 4.5 million customer accounts.Credit:
Origin said the regulator’s decision was an “important milestone.” The energy retailer added it was preparing information for shareholders and had commissioned an independent expert’s report for investors.
ACCC boss Gina Cass-Gottlieb says the decision to approve the bid came down to the wire.Credit: Michael Quelch
The transaction must also gain majority support from Origin’s shareholders as well as get a green light from other regulators, including the Foreign Investment Review Board and the National Offshore Petroleum Titles Administrator.
Several large shareholders, among them super fund giant AustralianSuper and ASX-listed money manager Perpetual, are agitating for Origin’s board and management to push Brookfield and MidOcean for a better deal, given Origin’s recent return to improved profitability, underpinned by the strong growth in its British Octopus retail business, and the growing consensus that the life of its Eraring coal-fired power station in NSW will need to be extended.
AustralianSuper took the unusual step late last month of bluntly informing the media that Origin’s current share price was substantially below the fund’s estimate of its long-term value. The super fund boosted its Origin stake by 1 per cent, taking its total holding to 13.68 per cent and making it the company’s biggest shareholder. It could have a decisive impact on the consortium’s takeover plans when the deal is put to a shareholder vote for rejection or approval.
Cass-Gottlieb acknowledged behavioral undertakings were not “optimal” for resolving competition concerns in merger matters. She said Brookfield’s behavioural undertaking to play fair in Victoria’s electricity market was further mitigated by close regulatory oversight of the sector and by AusNet’s minority shareholders who have a clear, commercial and financial interest to ensure the transmitter is operated independently.
“We tested it very, carefully. We’ve concluded that the proposed acquisition will likely result in an accelerated rollout of renewable generation and storage … and a reduction in the emissions intensity of Origin, which is the fourth-largest greenhouse gas emitter in Australia. These we consider as a material public benefit that outweighs those real and potential competition concerns,” Cass-Gottlieb said.
Origin’s share price jumped over 5 per cent to $9.21 on the news.
Brookfield has said it will connect 14 gigawatts or renewable energy to the grid and turn Origin into Australia’s biggest green energy provider by 2030. Without the transaction, Origin had far more modest plans, expanding by renewable generation by just 4 gigawatts, similar to competitor AGL which will deploy 5 gigawatts by 2035.
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