Brookfield Renewable (NYSE: BEPC) (BEP +0.81%) fell short in its attempt to win shareholder approval for its takeover of Australian utility Origin Energy. The global renewable energy producer was working with several partners to take that company private to accelerate its transition to lower-carbon energy. The deal would have helped move the needle for Brookfield by providing near-term cash flow and long-term growth potential.
However, the company is now evaluating its options, which could see it walk away from the proposed transaction. Here's a look at whether the likely failed acquisition is an investment thesis-breaking event.
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Key Data Points
Falling short
A Brookfield-led consortium agreed to buy Origin Energy for $10.6 billion in March. The company planned to split that company in two. Brookfield and its partners would acquire the energy markets business.
They planned to decarbonize that entity by retiring a coal-fired power plant and investing billions of dollars to build new renewable energy capacity. Meanwhile, private equity giant EIG would acquire its integrated gas business, including its stake in the Australian liquefied natural gas (LNG) export facility APLNG.
While Origin Energy's board voted in favor of the deal, which also received regulatory approval, Brookfield didn't win enough shareholder support. Only 69% of investors voted in favor of that deal, short of the 75% needed for approval. The company couldn't convince Origin's largest investor, pension fund AustralianSuper (which owns a 17% stake in Origin), to vote in favor of the deal.
Brookfield made an alternative proposal in case its offer failed to win enough support, which Origin's board rejected. In light of these rejections, Brookfield is considering its next steps. While it could make another offer, it will likely walk away from the deal. The company has already abandoned a similar deal to acquire and decarbonize another Australian utility, AGL Energy.
Opportunities abound
Origin Energy would have been a needle-moving deal for Brookfield. The company planned to invest up to $750 million in equity into the transaction, half the capital it has committed to investing in transactions over the past year. Those deals would have added $200 million in incremental annual funds from operations (FFO) for the company, keeping it on track to deliver 10%-plus FFO annual per-share growth again in 2024.
In addition, the deal would have given Brookfield Renewable a strategic growth platform in Australia. It planned to invest significant capital over the coming years to build new renewable energy capacity in that country.
Despite all that, losing Origin Energy isn't the end of the world for Brookfield. The company has had no problem finding new investment opportunities this year.
For example, it recently agreed to acquire U.K. renewables developer Banks Renewables for $600 million (Brookfield is investing $120 million in the deal). It's also partnering with leading Indian renewable developer Axis Energy. The company and its partners will invest up to $850 million (up to $170 million by Brookfield) to develop new wind and solar energy projects over the next three years.
Meanwhile, the company sees plenty of additional opportunities on the horizon. CEO Connor Teskey noted in the press release acknowledging the Origin Energy shareholder vote:
We are seeing plentiful opportunities to deploy capital at or above our target returns, as demand for clean power from corporations continues to accelerate, and access to capital is becoming increasingly scarce for some market participants. We remain confident that we will deploy at least $7 billion to $8 billion of equity capital into growth over the next five years, consistent with our targets. Specifically, our plan to accelerate the transition of Origin has generated significant interest from similar businesses around the world, who are seeking a capital and operating partner to enhance the value of their businesses by accelerating their transition.
As Teskey noted, while Brookfield might have failed to win over Origin Energy shareholders for its decarbonization plan, its strategy has piqued the interest of others in the utility industry. With much higher interest rates, many utilities are looking elsewhere for capital to fund their energy transition plans.
Brookfield has no shortage of capital. In addition to the equity it has to deploy, the company has access to even greater pools of capital through its transition fund strategy. The company and its sibling, Brookfield Asset Management, are raising two new funds: the Catalytic Transition Fund (CTF) and the second Brookfield Global Transition Fund (BGTF II). The funds have already raised over $20 billion to invest in decarbonization strategies.
Brookfield Renewable had planned to use capital from its first Global Transition Fund (BGTF I) to fund the Origin Energy deal. It still has that capital to deploy, plus the money it's raising from its newest funds.
A speed bump in its value-creating plan
Brookfield Renewable had a smart plan to transition Origin Energy to cleaner energy. The win-win deal would have benefited the environment and Brookfield's shareholders.
However, the company should have plenty of power to continue growing shareholder value in the future without Origin. Its organic growth drivers should power 7% to 12% annual FFO per-share growth through 2028. That's enough to grow its 4.9%-yielding dividend by 5% to 9% per year.
Meanwhile, acquisitions would enhance that already strong plan, potentially adding over 9% to its bottom line each year. Given the current environment and its access to capital, Brookfield should have no problem finding additional needle-moving deals. Because of that, it remains an excellent long-term investment opportunity that could continue delivering double-digit total returns.
