Why Origin takeover is not a done deal

But, but, but … the delayed pace of the energy transition and confusion about the resilience and cost of Australia’s energy supplies translates into increasingly complicated choices for companies and customers, as well as for governments.

The manoeuvring over Origin’s proposed acquisition by Canada’s Brookfield Asset Managers and the US based EIG partners demonstrates that uncertainty. The original offer accepted late last year was at a near 50 per cent premium to Origin’s share price at the time. The situation has changed dramatically since then.

The board is “acutely aware”, according to Perkins, that the share price closed on Tuesday 39 cents above the bid price it backed.

“We are also aware of the comments by our significant and long term supportive shareholder, AustralianSuper, about the value of the company,” he said. “We remain engaged with the consortium and with shareholders seeking to facilitate a successful scheme.”

Although there can be no guarantees about the energy market, the outlook is clearly strong and getting stronger across all of Origin’s major businesses.

That scheme requires the approval of 75 per cent of Origin’s shareholders. AustralianSuper, with close to 14 per cent, is not the only big investor suggesting the bid price isn’t high enough. Using much blunter language, stockbroker Angus Aitken has also been loudly complaining for months the deal grossly undervalues the company, its assets and its prospects.

The scheme booklet, including the independent expert’s report, is to be sent to shareholders next week along with the timetable for the transaction. Approval of the deal from the Foreign Investment Review Board is not expected to be an issue.

The Grant Samuel expert report will no doubt provide a range of pricing and caveats to allow the board leeway. Perkins told the AGM Origin could not unilaterally walk away from the scheme because of Origin’s improved performance but it would be up to shareholders to decide.

He warned the share price could fall if the deal doesn’t proceed. Despite Origin’s announcement of improved guidance for 2024, the share price did close slightly lower on Wednesday. But although there can be no guarantees about the energy market, the outlook is clearly strong and getting stronger across all of Origin’s major businesses.

Anticipated improvement next year includes domestic energy markets and LNG production while the 20 per cent ownership of Octopus, the second-largest UK energy retailer, produced a “step change” in earnings last year that looks certain to grow. Perkins says Origin is “delighted” with the performance of Octopus. Its valuable Kraken software program is expanding rapidly internationally towards a target of 100 million customers by 2027.

Less surprisingly, Australia’s energy transition is not going nearly as smoothly. According to Perkins, the transition will be good for customers, the business and the planet in the long term. It’s the short term that’s proving so problematic despite the confidence regularly expressed by Energy Minister Chris Bowen.

Along with its traditional coal and gas businesses remaining highly profitable, for example, Origin Energy is investing in everything from batteries to virtual power plants to wind projects to hydrogen.

But Perkins points out at least one major solar or wind project would need to be built every month to meet Australia’s national target of 82 per cent renewable energy by 2030 – up from 35 per cent now.

“What has become increasingly clear this year, with several major renewables and transmission projects delayed, is Australia is not moving fast enough,” he said. “We must be honest about both the costs of the transition and near term challenges we must navigate – not only the benefits society will reap over time.”

Along with ever-increasing costs and labour and materials shortages, community resistance to the building of major transmission lines and wind turbines is proving a major blockage to Australia’s 2030 ambitions.

The Victorian government has also had to do confidential deals with companies to ensure enough coal-fired power is available to bridge the gap while Origin is negotiating with the NSW government to delay the 2025 closure of Eraring, Australia’s biggest coal-fired power station.

Yet federal and east coast state governments agreed last year to block gas from the “capacity mechanism” supposed to provide back-up power to renewables and ensure no blackouts at times of peak demand.

Origin owns the nation’s largest fleet of gas peakers.

“The firming capacity controlled by Origin has never been more valuable and vital than in the next five years,” Aitken noted on Wednesday.

CEO Frank Calabria clearly agrees, telling the AGM that gas generation will play an important role in ensuring reliable power supply.

“As more renewables enter the market, Origin’s view is new gas fired generation will be required and a functioning capacity mechanism that includes gas will be important to encouraging the necessary investment,” he said.

Not according to Australia’s energy ministers. Consumers will no doubt find out the hard way who’s right – no matter who ends up owning Origin Energy.