Canadian investor Brookfield Asset Management and US-based EIG Global Energy Partners are set to take over one of Australia’s largest energy companies, in an A$18.4bn ($11.8bn) bid for what they call a “once in a generation” opportunity to invest in the global energy transition.
Origin Energy, a liquefied natural gas developer and energy company with 4.2mn residential customers, said it would recommend the deal to its shareholders if the indicative and non-binding offer of A$9 a share is formally made. Its share price surged 36 per cent to $7.90 on Thursday’s news.
Gas prices have soared since Russia’s invasion of Ukraine provoked an energy crisis in Europe, which has boosted the revenues and values of Australia’s LNG exporters.
However, Australia still faces a tough task in reducing its domestic energy reliance on coal-fired power. Energy companies including Origin and AGL have come under pressure from shareholders to give details on how they will accelerate plans to switch to renewable sources of power, including solar and wind.
Both Brookfield and EIG have targeted Australia in the past for opportunities in the country’s energy transition.
Brookfield’s Global Transition Fund, which is co-led by former Bank of England governor Mark Carney, had made a bid for AGL, alongside software billionaire Mike Cannon-Brookes, this year. Brookfield also partly owns electricity transmission business AusNet, which means the deal is likely to be scrutinised by competition regulators.
EIG, which has formed a gas company called MidOcean to pursue deals, backed a failed bid for oil and gas company Santos in 2018 and bought stakes in four Australian gas projects from Tokyo Gas for $2.1bn last month.
The bid for Origin was the consortium’s third after offers in August and September were rebuffed. The bid is pitched at a 55 per cent premium to Origin’s share price the day before the offer was revealed. The bid value includes Origin’s net debt of almost A$3bn.
Origin, which owns the country’s largest power station, situated north of Sydney, would be broken up if the deal completes.
EIG’s MidOcean would take over the company’s gas operations and its stake in the Australia Pacific LNG project which is jointly owned with ConocoPhillips and Sinopec.
Brookfield would acquire the large retail and energy supply businesses. The fund said it has built A$20bn of investment to fund Origin’s transition to renewable energy sources by 2030.
Stewart Upson, head of Brookfield’s Asia-Pacific arm, told the Financial Times that Origin was uniquely placed to contribute to Australia meeting its “net zero” targets. “The global energy transition is a once in a generation investment opportunity which requires trillions of dollars of investment,” he said.
He said that companies such as AGL and Origin had lost their “utility” status as public companies due to the investment needed to switch from fossil fuels to renewable energy sources, adding that Australia would require at least A$80bn of investment in its energy market to hit its 2030 climate reduction targets.
Frank Calabria, Origin chief executive, said: “We believe Origin is in a strong position to lead the energy transition, capture opportunities and create value for shareholders.”
Australia’s energy sector has been on a consolidation wave in the past year. Woodside Petroleum completed a merger with BHP’s oil and gas business this year, while Santos merged with rival Oil Search in a A$21bn deal last year.