Origin Energy shares dive as deal risks mount
Australian Financial Review
14 November, 2023
Market confidence in the $20 billion takeover deal for Origin Energy has taken a dive after rebel shareholder AustralianSuper further increased its stake in the large electricity and gas supplier, cutting the chances of bidders Brookfield and EIG securing the investor support they need.
Origin shares dropped 3.2 per cent on Tuesday to $8.50 after AusSuper bought more stock, taking its holding to 16.5 per cent and making it even more difficult for the North American pair to get the required 75 per cent shareholder approval at next week’s vote.
But the decline in the shares since mid-October when they were trading at north of $9.25 has helped persuade some investors to drop their earlier opposition, keeping the possibility alive that Brookfield and EIG may still secure the 75 per cent shareholder approval that they need.
The bidders increased their offer by 8 per cent two weeks ago, and this week declared a fully franked special dividend if the deal is approved. The shares closed on Tuesday some 10.8 per cent below the sweetened bid price.
“The revised proposal is not quite what we want, but I guess we are getting a taste of the share price trading materially below what’s proposed, so we’ve got a taste of the downside,” said Ross Illingworth at Kingfisher Capital Partners, who had previously resolved to reject the offer.
“We’ve probably changed our position a bit, thinking through it, and I think there would be quite a few others in that camp as well.
“We’re probably now inclined to vote for it.”
Still, AustralianSuper is understood to have fielded multiple calls from other Origin shareholders looking to understand its stance, which is based on the belief that the $9.53 a share offer from Brookfield and EIG remains substantially below Origin’s long-term value.
One energy analyst said AusSuper’s positive view on Origin’s prospects in the transitioning energy market seemed to be gaining traction.
“It is increasingly recognised in the industry that AustralianSuper may have a point when it comes to the more bullish macro outlook and how well Origin is placed to take advance of the higher and more volatile prices that are ahead,” the analyst said.
They said Origin’s unique position in gas peaking power generation should provide healthy returns over the next several volatile years in the electricity market, while it is also poised to receive government support to keep its profitable Eraring coal power plant running. It also has green energy opportunities it can layer into its portfolio.
That suggests at least some shareholders will join AusSuper in voting against the scheme of arrangement at the November 23 meeting, despite the unanimous recommendation of the board. All three major proxy advisers have also recommended a vote in favour of the deal, and an independent expert has determined the offer price is slightly above the upper end of its valuation range.
Assuming only about 80 per cent of Origin shareholders vote, the deal will be rejected if shareholders representing at least 20 per cent of the stock vote against.
The possibility the deal will collapse has also raised questions in the market about what could happen next, with Brookfield and EIG having already stated they could immediately launch an off-market takeover bid. There are also questions around the future of the board and chief executive Frank Calabria if shareholders reject the deal they have recommended.
A shareholder notice filed by AusSuper on Tuesday showed the fund bought the additional shares at prices of between $8.41 and $8.93 each, with the biggest chunk of stock acquired on Monday at $8.65.
The renewed buying comes a day after Brookfield and EIG offered the industry fund the option of joining the bidding consortium but were swiftly rebuffed.