‘Buckley’s to none’: Brookfield faces defeat as Origin ditches Plan B
Australian Financial Review
30 November, 2023
Brookfield and EIG face almost certain defeat at Monday’s Origin Energy shareholder meeting to decide the fate of their $20 billion scheme offer – with the unappealing choice of mounting a hostile takeover bid or walking away after their 13-month pursuit.
Origin’s board also faces difficult choices if it continues as a standalone ASX company, with some investors urging it to increase dividends and others advocating that it use its cash flows to accelerate its shift to clean energy, as Brookfield had promised to do.
Ross Illingworth, chief investment officer of Kingfisher Capital Partners, said Brookfield and EIG had “over-engineered” their bid by adding a complex Plan B to the original scheme offer of $9.39 a share after it became clear a week ago that proxy votes were running against them.
Origin shares fell 2.4 per cent to $8.20 on Thursday after the board formally rejected the Plan B alternative. The postponed November 23 scheme vote will still go ahead on Monday. “The share price says it all today – Buckley’s to none is the market’s vote on it,” Mr Illingworth said. Kingfisher holds Origin shares for a network of wealthy family offices.
He said many shareholders had accepted the bid is not going to get up and “moved on in their minds”, while some arbitrage funds – which buy into takeover situations to make a quick profit – “are probably quitting early, worried that it’ll go sub eight [dollars].”
Jamie Hannah, VanEck’s deputy head of investments, said: “We agree that Plan B isn’t a good plan for shareholders. While we support the original plan, we don’t think it’ll have sufficient support to reach the 75 per cent.
“I don’t know what Brookfield will do from here – they could walk away or make a hostile bid.”
Increase dividends’
VanEck and Kingfisher had voted in favour of Brookfield and EIG’s scheme bid, but have different expectations for Origin as a standalone company.
“Origin will be faced with increasing the payout ratio to improve the dividend yield and get the franking credits out and doing old-fashioned things and running the company on a standalone basis,” Mr Illingworth said. Origin will also inevitably come under pressure to increase its decarbonisation and renewable energy targets.
Under Plan B, if the scheme were rejected, EIG would have bid $9.08-$9.33 a share for Origin, kept its Australia Pacific LNG business and sold its energy markets business to Brookfield for $12.3 billion.
Origin’s directors said this was incomplete, highly conditional and too complex to be put to shareholders, but continued to recommend investors vote in favour of the original scheme offer at Monday’s meeting.
In particular, they said the revised proposal required finalisation of funding arrangements, updates to regulatory approvals, rulings from the Australian Taxation Office and revised legal documentation.
“Following careful consideration, including obtaining advice from its advisers, the board considers the revised proposal is not in the best interests of Origin or its shareholders,” the company said.
“It is also the board’s view that the value of the revised proposal does not adequately compensate shareholders, including taking into account the extended timeline that the revised proposal would require.”
Origin said that if the vote on the existing offer was not supported by at least 75 per cent of ballots cast on Monday, its board and management would continue to execute the company’s strategy and “ambition to lead the energy transition in Australia”.
“Consistent with its duties, the board will remain open to strategic options that enhance shareholder value,” the company said.
‘Get rich quick’
AustralianSuper, which owns more than 17 per cent of Origin’s shares, has been steadfast in its opposition to the takeover proposals, but some institutional shareholders including Allan Gray and the Australian Retirement Trust are in favour.
The delay in the shareholder vote has given the Brookfield consortium more time to try to win over uncertain investors.
The current value of the Brookfield offer is $9.39 a share in cash to Origin shareholders based on Wednesday’s exchange rates, including a fully franked special dividend of 39¢ a share.
Former prime minister Paul Keating on Wednesday lambasted the proposed takeover as a “get-rich-quick” scheme that Australia needs “like we need a hole in the head” after Brookfield told potential co-investors that it could bring Origin Energy back to the stock exchange in as little as five years.
Mr Keating urged the Foreign Investment Review Board to knock back the takeover bid in the same way Canada blocked a $40 billion bid from BHP to acquire Potash Corporation of Saskatchewan on national interest grounds.
Faster transition under consortium
“What Brookfield is proposing is simply a pure private equity play,” Mr Keating wrote in The Australian Financial Review.
Mr Keating is an adviser to Lazard Australia, an investment bank engaged by AustralianSuper to assist it in its campaign to convince shareholders to reject the offer.
A Brookfield spokesman said on Wednesday that the consortium would be able to speed up Origin’s transition to renewable energy if it was successful in acquiring the company.
“To achieve its own plan, Origin will need to reduce dividends and do capital raises,” the spokesman said. “Brookfield is a long-term investor. Our ‘green build-out plan’ is a 10-year plan, and we will own Origin for [between 10 and 12 years] and invest up to $30 billion.”