The ticking fee payable to Origin Energy [ASX:ORG] shareholders by Brookfield Asset Management and EIG Partners as part of their revised and agreed AUD 18.7bn (USD 12.48bn) deal is likely to be triggered as a result of the deal’s regulatory complexity, said sources familiar with the situation.

The parties yesterday (28 March) announced a binding Scheme Implementation Deed (SID) comprising AUD 5.78 per share and USD 2.19 per share for a total consideration of AUD 8.912 per share, based on an assumed AUD/USD exchange rate of 0.70. A 4.5c per month ticking fee, accruing on a daily basis, will be payable if implementation of the Scheme is delayed beyond 30 November.

The sources agreed that beating the deadline is possible, but given the deal’s regulatory complexity it may not be. The SID noted that Origin and the consortium are targeting implementation of the Scheme by early 2024 with the exact timing dependent on the regulatory process.

The deal’s regulatory conditions include the Foreign Investment Review Board (FIRB), the Australian Competition and Consumer Commission (ACCC), the National Offshore Petroleum Titles Administrator and certain other unspecified foreign investment approvals. 

The consortium is obliged to make an ACCC application filing by 14 April. The sources explained that under the ACCC’s authorisation process, this will be a first draft filing and the 90-day ACCC consideration period only kicks in once the application is finalised and accepted.

As reported, deal parties have two options when seeking the ACCC’s view on a proposed merger. The public informal merger review is by far the most common route but provides no protection from legal action. The merger authorisation process, on the other hand, gives statutory protection from certain legal action and recognises that some mergers may give rise to public benefits that outweigh public harm. According to the ACCC’s website, a review process under this procedure goes beyond the substantial lessening of competition (SLC) test applied in an informal merger review. Under the merger authorisation process, the onus is on the merging parties to prove the transaction is in the net public interest.

Last week, this news service reported that the ACCC will not find it easy to determine behavioural or structural remedies and undertakings that would assuage its concerns around the vertical integration aspects of the deal.

In August last year, the Australia and New Zealand Banking Group pursued the less common formal review option in its acquisition of Suncorp Bank from Suncorp Group [ASX:SUN]. The ACCC is still assessing the proposed deal and aims to make a judgment in June.

ACCC approval prospects are strong

One of the sources noted that Origin would not have signed an SID if it did not believe prospects for gaining regulatory approval were strong. A second source said the bidders’ best assessment is the transaction will reach completion in 4Q23 and noted the bidders believe there are no material competition issues, and that the transaction is in the national interest with clear public benefits that will arise from the investment. Brookfield, the same source noted, is committed to investing at least AUD 20bn in Origin, which is the largest-ever planned investment in Australia’s renewables sector and will put Australia on a fast track to achieve its net-zero energy target.

A third source explained that the ACCC will naturally give a lot of weight to the competition aspects of the deal, and will need to determine that on balance, the public benefits outweigh any detriments to competition. The source noted the ACCC’s key concerns are around the consortium’s transmission company AusNet Services, which it bought last year. It has been widely suggested that the consortium may have to ringfence or sell this asset to gain ACCC approval.

A competition lawyer said that following a valid application being lodged, the ACCC has 90 days to make its determination unless the deal parties agree and seek in writing, ahead of the deadline, an up to 90-day extension. If no decision is made within these periods, the ACCC is taken to have refused authorisation. The ACCC website states that its “ability to make a decision within 90 days depends on the information and evidence provided in the application and the complexity of the issues raised”.

As previously reported by this news service, the ACCC’s website explains that a final decision can either see it grant authorisation, or grant authorisation subject to conditions/undertakings, or deny authorisation.

The lawyer noted there are then 21 days to file a review by tribunal, which has 90 days or 120 days (if there is new evidence) to make a decision. “The total time for this process could be almost 11 months which takes you to February or March 2024.”

The lawyer said they believed there is a good chance the deal is approved based on there being no substantial lessening of competition (SLC). “We are not sure how the parties prove the benefits will eventuate but given the current energy crisis and politics around this issue, it would not surprise us if the ACCC accepted the public benefits argument too.”

Origin closed at AUD 8.25 today (29 March). Prior to the 10 November announcement, Origin’s shares were trading at AUD 5.81 – up 16.4% in 2022 on a dividend-adjusted basis, but down from a 2022 closing high of AUD 6.92 on 2 May. 

Origin and the consortium declined to comment.