FYIBrookfield and EIG are understood to be in the process of...

FYI

Brookfield and EIG are understood to be in the process of launching a hostile takeover bid for Origin Energy by Christmas.
Sources have told DataRoom that the offer will be at a lower price than the $9.53 per share offer that is currently on the table through a scheme of arrangement structure, where shareholders vote on the transaction for it to gain approval.
Under the takeover bid structure, the suitors buy shares directly on the market.

It is understood that the takeover bid will be put forward by both Brookfield and EIG within the coming weeks, subject to a minimum acceptance of 50.1 per cent.
It means the race will be on for the two bidders to amass shares after AustralianSuper recently lifted its interest to just under 15 per cent from 13.67 per cent, outlaying up to $182m to buy shares through Macquarie Capital.
The bidders were recently released from their standstill agreement, which means they can now buy at least 5 per cent of the company if they also launch a takeover offer.
The move comes after AustralianSuper – the country’s largest superannuation fund – rejected the sweetened $16bn deal to buy Origin, which was an 8.2 per cent or $1.2bn increase from its original offer of $8.81 per share maintaining the offer undervalues the company.

As reported by this column on Thursday last week, AustralianSuper had been offered the opportunity to be part of EIG and Brookfield’s deal, but declined the chance.

Part of the problem is that, forAustralianSuper’s equities team, is that few compelling opportunities existwhere they can reinvest the money on the listed market in companies of the samecalibre as Origin when it comes to getting exposure to energy andinfrastructure and achieve the same returns.

The justification for a loweroffer through the takeover bid structure is that the company is not worth asmuch if it cannot be purchased by the suitors in its entirety.

A likely outcome is the biddersonly secure between 80 and 85 per cent at the most, with AustralianSuper’sblocking stake and 3 per cent shareholder Perpetual possibly voting against thedeal.

Funding is likely to be morecomplex and expensive.

Also, the game plan for Origin andEIG was always for EIG to take Origin’s gas business while Brookfield would ownthe energy retailer.

However, should the bidders gainmajority control and can assert themselves on the company’s board, a move tosplit the energy generator and retailer will trigger capital gains tax costsfrom selling one part.

Shares in morning trade AEDT inOrigin on Tuesday were at $8.65 each, with about $200m stock trading in recentdays.

Sources say that arbitrage fundsare capitalising on the latest activity, with Macquarie said to have tradedabout 6 million shares overnight for an investor, which was not thought to beAustralianSuper.

Brookfield’s motivation to buyOrigin comes after it tried unsuccessfully last year to acquire its listedrival AGL Energy, a deal fiercely opposed by activist investor MikeCannon-Brookes.

The appeal is to profit from thecountry’s energy transition from coal-fired power towards more clean forms ofenergy, namely solar and wind power, to limit pollution into the air with theaim of reducing global warming in what is likely to come at a cost thatBrookfield suggests could be $20bn.

It also is happening as energyprices are soaring on the back of the Ukraine war with Russia that has pushedup the oil price, caps on east coast gas prices and energy shortages inAustralia with air polluting coal-fired power stations being wound down.

The modus operandi of the Canadianprivate equity powerhouse is to work on a friendly basis with company boardsrather than raid registers with a blocking stake, likely the reason why itnever amassed a major holding before launching its buyout proposal for Origin.

Originally, the plan of EIG andBrookfield was to try harder to convince AustralianSuper to take part in itsdeal.

But laws surrounding truth intakeovers removed the option when the shareholder made a statement about itsintentions, saying the offer undervalued the company, and it would vote againstthe deal on November 23.

Brookfield and EIG, whose chiefexecutive R Blair Thomas arrived in Australia this week to rescue the buyoutplan, called their buyout offer “best and final” and it would have requiredthree quarters of voted shares approving the transaction for it to succeed.

Meanwhile, proxy firm ISS said theoffer was “higher than even the most opportunistic view of the independentexpert” and shareholders had the choice to take the proposal “versus taking onthe risks, uncertainty, volatility and cost of the energy transitionthemselves”.

Advising Brookfield and EIG areCiti, JPMorgan and UBS, while Origin is advised by Barrenjoey and Jarden andAustralianSuper Lazard.

It is believed Jarden andBarrenjoey will each gain at least $10m in fees should the deal succeed.

The scheme booklet says Origin hasover $60m in transaction costs, contingent on the outcome.