Proxy firm backs Origin sale to Brookfield and EIG

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An influential shareholder advisory firm has backed North American consortium Brookfield and EIG’s takeover of power giant Origin Energy. It’s the first group to favour the $20 billion bid even as major shareholder AustralianSuper doubles down on its opposition.

Brookfield and EIG are locked in a full-throated fight to sway shareholders in favour of their bid for the Australian power retailer and generator, rolling out a proxy solicitation blitz aimed at mustering mum-and-dad stockholders to accept their “best and final” offer lobbed last week at $9.53 a share.

Brookfield says it will spend up to $30 billion on renewable energy if it gets control of Origin.Credit:

The consortium’s revised offer was at an 8 per cent premium to the $8.81 per share cash payment outlined in a scheme agreement backed by Origin’s board in March and above an independent expert’s valuation range of $8.45 to $9.48 per share at the end of June.

Positive support from proxy advisors – firms that provide research and voting advice for large and small investors – will be crucial to the consortium’s bid, which is teetering on the edge of defeat after Origin’s largest investor, AustralianSuper, expanded it stake to 15.03 per cent this week and dismissed the offer.

AustralianSuper insists the bid is still substantially below its estimate of Origin’s long-term value.

However, proxy advisor ISS has now backed the deal, saying Brookfield and EIG’s initial tilt at Origin came during a time when the power firm was weakened by volatile energy markets. The latest offer was at “least at the bottom of a reasonable range of fair values and includes a reasonable premium to the stock price absent a takeover,” ISS told its investor clients.

“The transaction offers shareholders a cash exit at a premium in exchange for surrendering the pay-off of a potential successful energy transition for the company,” the proxy advisor explained.

“The company has a strong market position and potential funding to finance such a transition, though energy price volatility, regulatory uncertainty and large project execution make the payout rather uncertain. It is the company’s structure and exposure to many key variables outside its control that has caused volatility in cash flows, led to the board to recommend the offer and caused debate around valuation.”

Under the deal’s terms, Canada’s Brookfield will end up with Origin’s power generation and retailing division, which supplies about 4.5 million customer accounts. MidOcean Energy – a liquefied natural gas company formed by US-based EIG – will acquire Origin’s interest in a Queensland LNG joint venture, Australia Pacific LNG.

A consortium spokesperson said that momentum was “clearly building behind our compelling $9.53 per share offer to Origin shareholders”.

“In addition to the favourable investor feedback we have received, today’s ISS recommendation represents another independent voice that supports accepting the compelling and certain value we have offered,” they said.

ISS said Brookfield and EIG’s new bid price was not based on cash flows at a weak part of the cycle, but rather on normal earnings from Origin’s energy markets business, peak earnings at its APLNG arm, and on a dramatic surge in income from Octopus Energy business in Europe.

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