Origin Energy’s bid led by Brookfield Asset Management will be reviewed by the Australian Competition and Consumer Commission

“While the final indicative offer was made after these issues surfaced, greater clarity around government intervention may influence the final offer price. We believe the impact would be minor – between 10¢ and 20¢ – because the medium-term assumptions are likely to take into account a normalization of energy prices.

Unanimous recommendation

Origin said Thursday that if Brookfield and its partner EIG, a U.S. private equity firm, consolidate their indicative cash offer of $9 per share into a binding offer after an eight-week due diligence period, its board of directors intended to recommend it to shareholders. unanimously.

EIG’s subsidiary MidOcean Energy would take control of Origin’s 27.5% stake in Queensland gas exporter APLNG.

Stewart Upson, Brookfield’s CEO for Asia-Pacific, said Thursday that the Canadian company would argue that the public interest in the deal outweighs any competition or regulatory concerns because it has a treasury of $20 billion war to invest in new renewable energy and storage assets needed to accelerate the transition to clean energy over the next decade.

He said Origin was a “unique” vehicle to invest in decarbonizing a major energy provider because its gas-fired plant fleet can be used to “firm” variable wind and solar power while the storage is put in place, allowing it to move faster on the clean energy transition.

Macquarie sees FIRB approval as “less problematic as the bidders are well known in Australia”, but the company’s analysts have flagged the risk of dealing with ACCC approval.

Brookfield took ownership last year of AusNet Services, a high-voltage transmission company with an electricity and gas distribution network, and has a 50% stake in Intellihub, a smart metering company.

“The ACCC is less clear with the vertical integration of regulated and unregulated services.
electrical assets not being tested,” the broker told investors.

They said Western Australia and Queensland are examples of single-owner generation, distribution and transmission – the state – and “expect commitments to be made, but not insurmountable” .

Market concentration issues

Grattan Institute energy program director Tony Wood said it was not a safe bet.

“Is it surmountable? Maybe. It depends on whether the ACCC sees this as a competition issue. It’s not a walk in the park, but I think they can find ways.

Mr Wood said the Brookfield-EIG consortium’s worst-case scenario could be that it has to sell AusNet to complete the takeover.

He said Brookfield and EIG would also have considered potential Albanian government intervention in the gas market, most likely a price cap, as part of their deliberations.

The ACCC has signaled that it will publicly grill Brookfield on potential market concentration issues if the deal goes through.

Leading M&A lawyer agreed with Macquarie analysts and Mr Wood, citing strict rules limiting the ownership of transmission and retail energy suppliers.

The lawyers, who spoke on condition of anonymity, said obtaining permission to circumvent these issues would require a strict separation of the two companies. An alternative could be for Brookfield to sell AusNet.

ACCC chair Gina Cass-Gottlieb said it was too early in the process for the competition regulator to get involved and would wait for a submission from Brookfield and Origin on competition issues.

“It’s early days – we realize they have yet to move, as they announced, through due diligence and then binding agreements,” Ms Cass-Gottlieb said.

She said while a public review would likely take place, the regulator would “wait for a submission” when those stages of the deal are complete.

The ACCC has been contacted by Brookfield, EIG and Origin regarding the proposed deal.

Federal Treasurer Jim Chalmers declined to comment until the deal progresses further. A spokesperson said “all transactions are subject to regulatory processes and considerations, so it is not appropriate to comment further at this time.”

The lawyers also said the deal would trigger the FIRB process under its foreign investor and national security provisions, but would most likely be approved.

The relatively new national security provisions would apply to critical infrastructure such as gas supply, but are unlikely to be used against investors from countries seen as Australia’s allies.

Joining the United States and Canada in the Five Eyes could help dispel any concerns, the lawyers said.

A partner at a leading law firm remarked that Brookfield being Canadian would be particularly welcomed by the FIRB.

However, the government can impose confidential conditions on FIRB approvals, and it has done so increasingly recently when it comes to critical infrastructure.

The offer represents a 16% premium to Macquarie’s valuation of $8.19 for Origin and a 55% premium to its pre-offer market price.

Morgan Stanley analyst Rob Koh told investors on Friday that Brookfield and EIG’s $9 per share offer was higher than his bullish valuation of $8.23 per share for the company.

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