Origin Energy (ORG) $8.03

The 18-month journey by Brookfield LP and EIG to acquire ORG finally appears to be over for now, with 69% of Origin’s shareholders voting in favour of the $9.39 takeover deal, but unfortunately, for these shareholders in the short-term, this failed to reach the 75% approval threshold, and subsequently, the scheme will not proceed. There were some interesting twists in this particular tale that we should consider before looking at what comes next:

• The ORG board rejected the final proposal because it did not adequately compensate shareholders. Now, the stock is trading ~17% below the bid – a similar outcome to many similar situations through 2023.
• Australian Super accumulated a 17.5% stake in ORG into the vote as the outcome looked like a close call, with this effective blocking stake enough to derail the bid.

Interestingly, on the same day of the final proposal, the Federal Government announced an expansion to the Capacity Investment Scheme (CIS), a slight negative for ORG due to its coal-fired generation and gas-fired position. Energy transition will be expensive for ORG, but it’s nothing the market hasn’t been considering over the last few years. Following the failed takeover, out-of-pocket shareholders are pushing the board to deliver adequate compensation, although this might go quiet in 2024:

• A demerger, buybacks and higher dividends are on disgruntled shareholders’ menu as they look for a  sugar hit following the stock’s ~17% correction.

The board has retained their jobs. It will be interesting to see how/if they try to placate most shareholders who voted in favour of the acquisition. History tells us investors shouldn’t hold their breath. Australian Super, ORG’s largest shareholder, has now offered to provide capital for the electricity and gas supplier to fund its transition, which is the opposite of the above desires of many of the 69% who voted for the deal.

• We like ORG into weakness under $7.50 with uncertainties likely to keep us pedantic towards any entry, especially as a washout of hedge funds/arbitrage players could easily take this crowded stock lower into our buy zone.