$8.90 revised bid

MERGER & ACQUSITION

Need To Know

• Revised proposal $8.90 cash per share, down from $9.00 in the original December proposal
• Proposal remains indicative, conditional, and non-binding. Funding is NOT a condition for Brookfield or EIG
• Ticking fee payable of 4.5cps per month post 30 November 2023 if any Scheme of Arrangement is delayed

A revised proposal from a Consortium including Brookfield Asset Management and MidOcean Energy (MidOcean), an LNG company formed and managed by EIG, values ORG at $8.90 per share vs the December proposal at $9.00 less any dividends paid. The effective price once ORG goes ex-dividend is $8.74.

Given the drawn-out nature of discussions, changing regulatory landscape and proposed new Federal legislation which may impact ORG’s ability to generate earnings, the revised proposal will be seen as a relief by some investors.

The composition of any proceeds paid under the proposal includes;

• $8.90 per share for the first 100,000 shares held by each Origin shareholder; and
• For shares above that threshold, $4.334 per share plus US$3.194 per share.

This introduces a level of AUDUSD exchange rate risk for holders with >100k shares. The proposal assumes an AUDUSD of 0.70, so at spot exchange rates, the implied price is just over $9.00 per share.

Investment View

So where to from here for ORG? Brookfield is very motivated to acquire Australian utility and infrastructure assets after passing on AGL Energy (AGL) last year, ORG is now firmly in its sights.

In our view, the $8.90 price is as good a knockout price for ORG, despite the two earnings upgrades the company has pushed through since December. Proposed legislation from the Federal Government has the potential to materially impact the cash flows from ORG, so only a small reduction in the Proposal’s price is a great outcome that the Board has managed to achieve.

ORG Board approval awaits (we think the Board will approve) then the various approvals need to be secured before going to a shareholder vote later this year. Approvals from the ACCC and FIRB remain the most contentious. We would not be surprised to see the ACCC require some small asset divestments to gain approval, whilst FIRB remains a little bit of a lottery.

At $8.00, the share price is a ~9% discount to the proposal’s $8.90 price. This seems fair given the risks around approval and time-value of money considerations (could be > 6 months for any proceeds to be received).

We maintain our Buy rating (given >12% upside to $8.90 from current prices, equating to an annualised return of >20%). Investors with large overweight positions in ORG, may want to look at reducing exposure to ORG at share prices >$8.00.  There is very limited risk of a competing bid at higher prices for ORG in our view.