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Origin agreed to A$15.35 billion deal on Monday
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Energy Markets business to be acquired by Brookfield
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EIG's MidOcean Energy to take gas production business
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Shares in Origin trading 1% higher
(Adds analyst comment, updates share price and background)
By Scott Murdoch and Praveen Menon
SYDNEY, March 28 (Reuters) - Canada's Brookfield and its partner EIG decided to go ahead with a $10.2
billion plan to buy Australia's Origin Energy Ltd despite escalating regulatory and government policy headwinds,
senior management at the group said on Tuesday.
Origin, Australia's top energy retailer, on Monday agreed to
the long-running takeover offer from the consortium, nearing the
conclusion of one of the country's biggest private equity-backed
buyouts.
The group trimmed its offer by 1% last month after a
government move to cap gas prices hit valuations in the sector.
"It's concerning any time you have governments intervening
in markets. The history of that has not been great," EIG Chief
Executive Blair Thomas told Reuters in an interview.
"Those were headwinds we had to deal with," he added.
Once the deal is completed, EIG's MidOcean Energy will take
control of Origin's integrated gas business. With a 25% stake in
Australia Pacific LNG (APLNG) and the Australian LNG stakes that
MidOcean acquired last year from Tokyo Gas, the company will
have around 3.25 million tonnes of LNG.
The deal will need to be approved by Origin's shareholders
as well as Australia's Foreign Investment Review Board (FIRB)
and the Australian Competition and Consumer Commission (ACCC).
Origin's shares closed unchanged on Tuesday, holding below
the implied offer price of A$8.91 a share as the deal is not
expected to be finalised until early 2024 and there is currency
risk, with payment in a mix of Australian and U.S. dollars.
"The lack of a reaction is likely the uncertainty of
regulatory approvals, but I tend to think that it might take
time but those will be forthcoming," said Morgans analyst Max
Vickerson.
"The FX (foreign exchange) exposure will probably shake
loose some smaller shareholders who aren't comfortable with that
risk but at the downside of missing out on franking credits from
the interim dividend and any potential final dividend," he said.
POLICY SWINGS
APLNG will be affected not just by a proposed new gas
pricing regime, but also a government plan to give itself more
leeway to make APLNG and two other LNG exporters divert gas to
the domestic market.
Thomas said government policy swings world over are a
by-product of the volatility associated with the tension between
energy security and the transition to cleaner energy.
"I would argue that Europe had it much worse last year and
the jury is out to what 2023 and 2024 look like," he said.
"You are going to have regulatory and government policy that
swings," he added.
Origin, Australia's No. 2 power producer, has been looking
to speed up its transition to cleaner energy, accelerating the
planned shutdown of the country's biggest coal-fired power plant
and selling its gas exploration assets.
Brookfield said it plans to invest a further A$20 billion
($13.4 billion) of capital to fully replace Origin's power
generation and its power purchases with green power over a
decade. It plans to build up to 14 gigawatts of new renewable
generation and energy storage facilities in Australia.
"The broader policy of net zero by 2050 really has bipartisan support in Australia now and that is the basis on which we are making this investment," Brookfield Asia Pacific CEO Stewart Upson said in an interview, referring to a target for net-zero direct and indirect emissions by 2050. Argo Investments Senior Investment Officer Andy Forster said his firm, the ninth-biggest investor in Origin, was positive about the deal, even though it might take time to gain regulatory approvals. "Brookfield seems very committed to making the deal happen," he said. ($1 = 1.5031 Australian dollars) ($1 = 1.4950 Australian dollars) (Reporting by Praveen Menon and Scott Murdoch; Editing by Jamie Freed and Sonali Paul)
praveen.menon.thomsonreuters.com@reuters.net; Twitter: @Journopraveen))