North American Energy Group $18.7 Billion Bid for Australia’s Origin Energy

An Origin Energy power bill is pictured in Brisbane, Australia on June 8, 2018. AAP Image/Dan Peled

Australia’s largest energy retailer Origin Energy is one step closer to getting its multi-billion dollar acquisition deal through.

On March 27, Origin announced it had entered into a scheme implementation deed with a consortium led by Canada’s Brookfield and its U.S. partner EIG to buy all of the company’s listed capital.

This is a breakthrough in the transaction after the consortium became stuck in the due diligence process, stoking fears among investors of a deal collapse.

Due diligence is a step in the acquisition process in which the buyer examines the financial health, risks and other business problems of the target company.

Previously, in November 2022, Origin revealed that it received a conditional and non-binding proposal from the two investment firms, which offered to pay $9 (US$6.02) in cash for each share.

Details of the Deed

The new agreement set the consideration price at around $8.912 per share, which took the transaction’s total value to $18.7 billion.

Origin said the above price represented a premium of 53.4 percent to the company closing price of $5.81 per share on Nov. 9, 2022–the last trading day prior to the initial proposal by the consortium.

However, the consortium would deduct from the total consideration payable any dividends paid by Origin prior to the scheme’s implementation, including the recently paid fully franked dividend of 16.5 cents per share on March 24.

For the scheme to proceed further, it needs the approvals of Origin shareholders, the court and regulators, including the Foreign Investment Review Board and the Australian Competition and Consumer Commission.

The scheme also requires the issue of an independent expert’s report that concludes that the deal is in the best interests of Origin shareholders.

Origin Energy's Australia Pacific liquefied natural gas facility at Curtis Island in north Queensland, Australia, on Oct. 10, 2016. AAP Image/Origin Energy

Meanwhile, Origin’s board of directors unanimously recommended shareholders approve of the scheme despite the absence of a superior proposal, saying the transaction was in their best interest.

“The transaction represents a significant premium to the share price prior to the original indicative proposal and reflects the strategic nature of Origin’s platform, its growth prospects and anticipated earnings recovery,” Origin Chairman Scott Perkins said in a statement.

“Our discussions with the Consortium confirm a high degree of alignment with Origin’s strategy and a desire to accelerate initiatives consistent with Origin’s critical role in Australia’s energy transition.”

Origin CEO Frank Calabria believed the transaction would provide a great outcome for shareholders and other stakeholders, including the company’s customers, employees and partners.

“We believe this transaction also stands to benefit the broader Australian community as it will unlock significant capital that can help accelerate the energy transition and deliver benefits in the form of cleaner, smarter and lower-cost energy for our nation over time,” he said.

The Consortium’s Plan for Origin’s Future

The consortium has planned to separate Origin into two entities, with Brookfield taking its energy markets business and EIG acquiring its integrated gas business.

It has also considered investing at least $20 billion to construct up to 14 gigawatts of new renewable generation and storage facilities across Australia in the next decade.

“As the energy transition gathers pace, what’s needed is increasingly clear: faster deployment of large-scale renewables, the accelerated, responsible retirement of coal generation, and an interim, supportive role for gas as the dependable backup fuel,” Brookfield Asset Management chair Mark Carney said as reported by The Australian.

“Brookfield is determined that the new Origin energy markets will lead the way in all respects at this critical moment for the Australian economy.”

The consortium said the above significant amount of investment was needed to retire Australia’s largest coal-fired power station, Eraring while ensuring the reliability and security of the country’s power grid.

Meanwhile, EIG’s subsidiary MidOcean informed Origin that the firm had reached an agreement with U.S. energy giant ConocoPhillips to allow the latter to buy 2.49 percent of Origin’s Australia Pacific LNG project after the deal went through.

Both Origin and the consortium hoped to carry out the financial scheme by early 2024.