Origin Energy Backs $11.8 Billion Buyout Offer From Brookfield Consortium

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 Thursday.

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.

Origin's share price soared nearly 40% in morning deals to A$8.14 but the stock gave back some of the gains to be up 34.6% in early afternoon trade.

The shares were last fetching $7.82 as investors and analysts assessed the risks involved in a deal of this size and 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 favour of the proposal if no higher bid emerges.

Origin said it had received an initial cash offer of A$7.95 apiece in early August from the consortium, which was hiked to between A$8.70 and A$8.90 per share in mid-September.

The offer will be increased by 3c 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 APLNG, along with two other east coast liquefied natural gas (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 Thursday.

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.

"Our confidence in Origin's prospects underscored our engagement with the Consortium and delivered a material increase on their initial offer," Origin Chairman Scott Perkins said in a statement.

Under the indicative proposal submitted on Thursday, 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 Australia Pacific LNG (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 shut down 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'," Brookfield's Asia Pacific Chief Executive Officer Stewart 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.

($1 = 1.5562 Australian dollars)