Origin Energy yesterday announced the receipt of a revised indicative, conditional and non-binding proposal from Brookfield and EIG to acquire 100% shares in Origin for A$8.90 per share.
The news is credit positive, and we have confirmation the deal is still proceeding, and the price is not materially different from previously offered. A bid of A$8.50-A$8.70 per share will have made it less likely for the Origin Board to approve. While the Origin Board has approved the proposal there is some time to go for this to convert to a binding offer and ultimately be approved by regulators (ACCC and FIRB) and shareholders.
However, the persistence of the bidders has given us conviction that they can handle any regulatory challenges, potentially through asset sales by Brookfield (if needed) to meet any hiccups.
In our view, a Change of Control (CoC) will occur when the transaction completes. The CoC has a ratings trigger as well, but that only applies if they have 2 solicited ratings on the company. Currently, they have only Moody’s.
As for the likelihood, we believe a CoC is now a greater than 50% chance of occurring. We note the worst- and best-case outcomes below.
Given the skew of outcomes and probability of CoC, we see good value currently in the Origin 2027s.
Using mid Bloomberg ASW/Cash Price, source: Bloomberg
