Australia’s green future at stake as Origin takeover hangs in balance

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Origin Energy chairman Scott Perkins talked a good game last week when the independent experts’ report from Grant Samuel deemed the $18.7 billion takeover offer lobbed by Brookfield and EIG for the energy group both fair and reasonable.

“Your board unanimously recommends that Origin shareholders unanimously vote in favour of the scheme, in the absence of a superior proposal,” he said.

But Origin investors are unlikely to take him at his word, especially after the independent expert hinted that Origin could be worth more than the “fair and reasonable″⁣ $8.91 per share bid lobbed by the suitors.

Brookfield has outlined plans to spend another $20 billion to $30 billion on renewable energy projects.

While the takeover hangs in balance, as Perkins attempts to straddle the competing interests of investors and Origin’s suitors, there is a bigger issue at stake.

Brookfield has pledged to spend billions more on green energy investments, far more than Origin could do on its own if the proposed takeover is successful.

In short, if Brookfield doesn’t lift its offer to placate disgruntled shareholders and the takeover fails, it could hurt Australia’s green energy push, which, as Perkins told investors last week, is facing significant challenges.

“The ambition is clear, and indeed the urgency to act to avoid the worst impacts of climate change is well understood. However, what has become increasingly clear this year, with several major renewable and transmission projects delayed, is Australia is not moving fast enough,” he told shareholders at the company’s annual meeting last Wednesday.

Origin Energy chairman Scott Perkins said Australia was not moving fast enough on renewable energy. Protesters outside the company’s AGM last week would agree.Credit: Oscar Colman

Perkins had many examples to choose from, including the significant delays to the delivery of transmission infrastructure that is needed to connect renewable projects to the grid.

But most pertinent was the knock-on effect for Origin’s Eraring coal-fired power station, which will now almost certainly stay open far longer than Origin intended to ensure a stable energy supply during the transition to renewables. How much longer depends on the outcome of Origin’s talks with the NSW government.

And the longer the delays, the more expensive it becomes for everyone.

“Inflation, challenges in the construction contracting market and supply chain issues are all contributing to the delays and increasing project costs. Costs that will ultimately be borne by customers, at a time when they have already been managing higher energy costs amid broader cost of living pressures,” Perkins said.

And as Origin boss Frank Calabria said last week, a failed bid will do nothing to ease any of these headaches due to the vast difference between Brookfield’s proposed green investments, with a price tag of up to $30 billion, and what Origin will be able to afford if the takeover does not go ahead.

“Our plan, and our strategy that we released last year to the market, had us targeting five gigawatts by 2030,” Calabria said.

“Brookfield has articulated a goal of having just under 14 gigawatts by 2033.

“We could not invest, on our own, that amount … in that timeframe. But clearly, they’ve set that ambition much more strongly.”

Origin CEO Frank Calabria admits the company cannot match Brookfield’s ambitious renewable energy investment schedule if the takeover fails. Credit: Oscar Colman

Even AGL, with all of its corporate blood-letting and agitation from billionaire Mike Cannon-Brookes, is targeting 12 gigawatts of new renewable investments by 2035.

Brookfield’s ambitions certainly caught the attention of the Australian Competition and Consumer Commission and they were cited as a reason for green-lighting the deal despite competition concerns.

“We found that the public benefits and public detriments in this matter were finely balanced. Likely detriments, particularly anticompetitive effects from vertical integration, had to be weighed against likely benefits to Australia’s renewable energy transition,” ACCC chairman Gina Cass-Gottlieb said.

Now, if only Origin investors would play ball.

The bad news for Brookfield/EIG is that market analysts are backing the case of Origin shareholders pushing for a higher offer.

Morningstar analyst Adrian Atkins said the current $8.81 a share deal, based on current exchange rates, offers no compelling reason for Origin’s management to sell at such a small premium to intrinsic value.

“We think a price closer to $10 would seal the deal. If the consortium walks away, we don’t think the share price will fall heavily given robust valuation support,” Atkins said.

Meanwhile, Macquarie analysts have also suggested that a sweetened offer, close to the $10 mark, might be needed to get the deal across the line.

According to Atkins, Brookfield/EIG’s current offer is dead in the water.

“The takeover proposal needs 75 per cent approval to pass, which seems unlikely based on public comments made by several of Origin’s largest investors,” he said.

Origin stock closed at $9.19 on Friday. The independent expert’s valuation range was between $8.45 and $9.48 a share.

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