Australia’s $10.6 bln takeover battle for Origin complicated by clean energy plan

By Lewis Jackson

SYDNEY, Nov 24 (Reuters) – The anticipated long-term value of the fiercely contested $10.6 billion takeover target Origin Energy has been thrown into disarray with the government’s sudden announcement of plans to expedite the expansion of renewable energy. This news came just hours before a crucial shareholder vote.

The Australian government unveiled a plan on Thursday to back 32 gigawatts (GW) of new wind, solar, and battery projects. Energy experts told Reuters the plan has the potential to trigger investments worth at least A$30 billion ($20 billion), although no specific figures were included in the announcement.

This plan, aimed at reshaping the electricity market in which Origin holds the position of the second largest power producer, has disrupted the forecast for electricity prices, future investments, and existing power plants.

The timing of the government’s announcement was particularly significant as it coincided with Origin’s revelation of a revised offer from Brookfield and EIG, prompted by the realization that investors were likely to reject the consortium’s initial bid. Origin’s board postponed the vote to Dec. 4 to evaluate the new offer in light of the 32 GW scheme’s implications.

The uncertainty surrounding Origin due to the government’s new policy has led some investors to believe that selling to the suitors is more advantageous than ever. However, AustralianSuper, a major shareholder, remains steadfast in its desire to retain its stake.

Max Vickerson, an equity analyst at Morgans, highlighted that with an increase in renewables, electricity prices will ultimately decrease, squeezing margins and shortening the lifespan of Origin’s existing coal and gas assets.

“This move accelerates the devaluation of legacy assets owned by Origin and AGL,” Vickerson commented, referencing Origin’s competitor AGL Energy. “Cheaper wholesale prices do not bode well for Origin in general.”

On the other hand, the potential for new investment through the government’s scheme weakens Brookfield’s argument that Origin and Australia urgently require its deep pockets to rapidly achieve decarbonization, as per Vickerson.

Brookfield has not publicly responded to the scheme, but a source close to the asset manager stated that the revenue guarantee for eligible projects could reduce the benefits of having a large customer base for a major power producer like Origin.

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If other entities choose to participate in the government’s underwriting offer, Origin might potentially save billions by allowing others to construct new wind and solar farms and simply contracting power for its 4.2 million customers, according to Tom Leske, a director at Churchill Capital, which advises event-driven hedge funds.

However, he cautioned, “But ultimately there’s so much variability about what the economic outcome is going to be.”

Giant pension fund AustralianSuper has advocated for Origin’s stake in the rapidly growing British renewable energy company Octopus Energy, its gas assets, and its extensive customer base as positioning the company favorably for the energy transition.

The government’s new plan only reinforces the fund’s confidence in Origin, according to an individual familiar with AustralianSuper’s stance.

Conversely, Simon Mawhinney, chief investment officer at fund manager Allan Gray, which holds roughly a 3% stake in Origin, suggested that the government’s plan appears likely to lower returns.

He argued, “More uncertainty only strengthens the case for accepting the A$9.43 offer today.”

“The price was fair given our perception of the risk and rewards before the announcement. This adds a lot of uncertainty.”

“It’s probably good for consumers and the environment and bad for everyone else,” he added.

($1 = 1.5366 Australian dollars) (Reporting by Lewis Jackson; Editing by Sonali Paul)