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AGL, EA restructures put Origin Energy in crosshairs

Chalk it up as the year for diversified utilities deals.

Ten years after the last big round of old world electricity deals – Origin buying Eraring Energy, AGL acquiring MacGen – the sector’s alive with fresh hopes of corporate activity.

The movement’s underway at Australia’s second biggest electricity retailer AGL Energy, scheduled to split in the middle of this year, and No.3 player EnergyAustralia, whose owner CLP has bankers considering how to make it attractive to hungry European strategic investors and/or a new Australian partner.

Which leaves heavyweight Origin Energy, the No.1 player with more than 4 million electricity and gas customers, and a 27.5 per cent stake in Queensland’s APLNG.

Bankers are scrambling to be part of Origin Energy’s future; they know there’s a lot of activity going on inside Origin, and are trying to find a way in.

The debate is which way Origin should go. It could follow the AGL lead (and likely EA’s) and separate its large and valuable retailing business from anything to do with coal, sell more of its APLNG stake, or try to demerge its upstream/downstream gas business.

The fact its two biggest rivals are going down the coal separation path, makes you think Origin Energy would at least be mulling whether it would make sense to do the same.

Origin Energy’s board and management team would have heard from a litany of bankers that there’s a handful of hungry strategic investors chasing a meaty Australian utility – think European’s Shell, Total, Enel and Iberdrola – although they will not own anything to do with coal. Australia’s Ampol and Telstra are similar.

That means Origin would need to deal with its Eraring Power Station, Australia’s largest power station, acquired in 2013, fuelled by black coal and slated to operate for about another decade.

Of course AGL’s fix is to retain its coal-fired generators in Accel Energy and spin-off retail, trading and strategic investments into the new AGL Australia, while EA is understood to be considering whether it can separate Yallourn, a big power station Victoria’s LaTrobe region, after talking to potential investors.

Of course none of this is new for Origin – it has been a demerger candidate for the past decade. What’s changed, though, is listed equities investors’ appetite for fossil fuels, and the arrival of some cashed-up strategics trying to get a foot in Australian utilities.

At stake is a $20 billion-plus pile of assets, which is a big pile in any banker’s pitchbook.

Source: Financial Review