‘No choice’: Origin deal faces mounting opposition

“We’re not going to sell for $8.81 when it’s trading at $9.20,” Mr Hannah said.

The takeover agreement, first revealed in November last year, was initially greeted very warmly by shareholders and hailed as the “deal of the year” in 2022. But Origin has since upgraded profit guidance for its energy markets business several times, while stronger commodity prices have boosted the value of its Australia Pacific LNG business in Queensland. Origin CEO Frank Calabria announced another marginal upgrade in guidance at the annual shareholder meeting in Sydney on Wednesday.

Origin’s 20 per cent-owned Octopus Energy affiliate in the UK has also experienced significant growth and an improved valuation.

A ‘small’ premium

Morningstar on Friday advised Origin shareholders to reject the offer, which goes before a shareholder vote on November 23 in Sydney and requires 75 per cent approval to succeed.

Analyst Adrian Atkins has calculated the offer represents a 4 per cent premium to Morningstar’s valuation of the standalone business, which he described as “inadequate”.

“We don’t see a compelling reason to sell at such a small premium to intrinsic value,” Mr Atkins told clients in a note.

The comments come after an independent expert hired by Origin to assess the cash offer deemed it “fair and reasonable”, citing a valuation range of between $8.45 and $9.48 a share. But the expert, Grant Samuel, also noted that the value of Origin could increase by 40¢ a share by the time the takeover is due to be completed in December, which would leave the offer price outside the range.

Several institutional investors have already signalled resistance to the offer on value grounds, most significantly Origin’s biggest shareholder, AustralianSuper. While the firm has not specifically said it intends to vote against the offer, last month it increased its stake by just over 1 per cent to 13.68 per cent, saying the share price was “substantially below our estimate of its long-term value”.

Perpetual has also criticised the offer as inadequate, as has Kingfisher Capital Partners. Several smaller shareholders meanwhile voiced opposition to it at Origin’s AGM, mostly because they want the company to remain in Australian hands.

Morningstar values a standalone Origin at $8.50 per share, only modestly less than the offer price.

“We think a price closer to $10 would seal the deal,” Mr Atkins said in his note, adding that the required 75 per cent shareholder approval “seems unlikely” given public comments by some of Origin’s largest investors.

“If the consortium walks away, we don’t think the share price will fall heavily given robust valuation support,” Mr Adkins added.

Macquarie Equities has also said a “bump” in the share price is needed, and has indicated a price closer to $10 a share to appease the register.

Origin’s board already agreed to the pricing terms in March, when the company’s performance and market outlook were much weaker. That leaves Origin’s shareholders as the last line of resistance, assuming the transaction is cleared by the Foreign Investment Review Board, as expected.