The pressure on Brookfield to lift Origin bid just went up

It won’t have escaped the notice of those dissident shareholders, led by Origin’s biggest investor, AustralianSuper, and funds management giant Perpetual, that this could lift the offer to $8.85, just above the current offer.

It’s hard to read this as anything other than a not-so-subtle suggestion that Toronto-based Brookfield needs to lift its offer.

But the use of the “roll forward” valuation raised eyebrows across the market on Thursday morning; both sides of this deal said it was unprecedented in Australia M&A, even in schemes of arrangement that have taken longer than this to be completed.

The Brookfield camp is certainly bemused by inclusion of the “roll forward” valuation, given its original offer did include a so-called ticking fee that would compensate Origin if the deal stretched on.

And the Canadian giant will be keen to learn a little more about how the “roll forward” valuation was arrived at. While the independent experts report goes into excruciating detail about the calculation of the June 30 valuation range, there is much less information as to how the “roll forward” valuation was reached.

All Grant Samuel provides is two options: a 40¢ boost to the low end of the valuation range at a ROE of 10 per cent, and a 24¢ increase based on a 6 per cent ROE. For a hugely complex company, it does look like a relatively simplistic exercise.

For all that, you can see the point that the independent expert is trying to make here: things are moving so quickly in energy markets that pinning down an accurate valuation has become very difficult.

That’s understandable. After all, it was only in March that investors were concerned that Brookfield could reduce its final offer for the company because of concerns about government intervention in gas markets and uncertainty about the path of wholesale electricity prices.

Seven months later, investors are pushing for a higher bid following a much stronger outlook for power prices and the surging valuation of Origin’s stake in British energy retailer Octopus.

But the Brookfield view is that its offer, which was pitched at an unusually high 60 per cent premium, was designed to account for the tailwinds of the past seven months. And as the independent expert’s report does say, the temptation to simply extrapolate a good period as the steady state of the business needs to be resisted.

Brookfield will hope the independent expert’s report puts to an end the valuation guessing game, in part by demonstrating just how complex the company is to assess, and remains determined to stick with an offer that is the product of almost two years of diligence and has now been declared fair and reasonable.

But AustralianSuper remains the kingmaker here. The report certainly won’t change its view that Origin remains undervalued at the current offer price and it isn’t afraid to see the energy giant stay public if the takeover falls over.

It’s hard to see how Brookfield won’t be dragged back to the negotiating table to get one of its signature global energy transition deals over the line.