The Secret Broker: Pass me another claret, this Origin deal is underdone
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Well, Mrs Broker is away with the girls this weekend, so she is leaving me to my own devices and I can see the worry in her face as she drives off.
My reassurance that I will be okay only brings back memories of times she has arrived back home to a husband with singed hair and no eyebrows. Or having to call out the locksmith after I had managed to lock myself into the wine cellar, after a dodgy DIY job had gone horribly wrong.
After waving her off, I’m about to settle down and do some research, before revving up the charcoal and getting my tomahawk steak out of the fridge and stuck into a red.
I’ve been trying to get my head around the takeover saga happening in Origin Energy all week and now this gives me the time to really understand what is going on.
My first reaction to Thursday’s higher offer is that yet another major company is about to be taken off the Australian bourse, so yet more shrinkage of investment opportunities for the longer term investors.
I can safely say that Australia has well and truly moved on from the Alan Bond days and into a more professional and international takeover environment.
Bittersweet memories come flooding back to me, as I start to read the ASX announcement from Origin, re their acceptance of a higher bid and what that means to all of the parties involved.
The bittersweetness for me is about all those fees that are to be paid out to all of the advisors involved and how we had to wait for bonus time to collect our just rewards, for the hard work we had put into all of those lunches and late night entertaining sessions.
In the good old days, it was more about who you knew when muscling in to a juicy deal, and the fees involved. This involved many a late night flight to WA to suck up to the deal makers.
You always had to go to them in the early days and they only came to see you when the wheels started to fall off of their leveraged deals.
Nowadays, everything will be more clinical, with mineral water and healthy salads on the menu, rather than bottles of Bin 389 and juicy steak at the Bull and Bear restaurant, next to the Sydney trading floor.
Or in the Long Room, which was next to the London Stock Exchange. In the Long Room, it was more a French claret rather than an Aussie classic.
Either way, your waistline expanded proportionally to the fees involved.
So, I’m hankering down to having a squiz at this latest Origin offer on the table, as I, like many others, are a bit confused with the figures involved.
The headline offer has been raised to A$9.53 a share yet the shares closed on Thursday night at A$8.47 with a tasty 41m shares going through.
So, why the difference?
Well, all is not as it seems.
Firstly, there is a special fully franked dividend involved of 39c per share and secondly, part of the offer is in US$ and not in A$.
In fact, the special dividend is at the discretion of the board and may only happen if it looks like more than 51% of shareholders vote the takeover through.
If the directors decide not to pay it, shareholders will still get approximately A$9.53 a share. They will just lose out on the franking credits.
Now, Origin Energy was first incorporated in 1946 and listed on the ASX in July 1961, so there will be a lot of loyal shareholders who will be sad to see it go. And if some of them are post the 1985 CGT (Capital Gains Tax) cut off point, then they will have to pay some tax.
As it is an all cash offer, there is no rollover relief, so even if they get the A$9.53 cash, after paying the CGT tax, they will be left with less to invest.
So, as a very rough example, if you accept the offer of A$9.53 cash and you have to pay say $2.00 per share in CGT, then you will only have A$7.53 to re-invest.
Accepting their cash offer means your portfolio’s valuation will actually fall in value, due to your tax obligations.
This is also one of the problems that Australian Super funds have to face up to.
They have to take a long view of their investments, like 40 years, and if Origin is removed from the ASX and they end up with more cash, then they have to find a home for it.
With a shrinking ASX, their job is getting harder and harder.
So much so, that one of Origin’s largest shareholders AusSuper has dug its heels in and said that this latest offer is not high enough, so it won’t be accepting it.
In fact, AusSuper’s been in the market buying more shares, so if it and enough shareholders combined hold more than 50.1% and all vote no, then it won’t go through.
So, there is a lot going on here and it is high drama that will go right down to the wire.
All shareholders registered at 7.00pm on the 21st November 2023 will be eligible to vote in the 23rd November shareholders meeting.
Having digested all of this this morning, I can see why the market has marked down their shares below the cash offer, and for me, my research is over.
Unless another company can come along with a higher offer, that involves a scrip for scrip offer, so shareholders can get some rollover relief, my gut feeling is that this offer won’t go through.
And the market is saying the same.
Phew, now all of that is out of the way, I’m off to rev up the Weber. I have strict instructions not to use a liquid fire lighter like last time and by the way, I’m sure you will all be glad to know that the wine cellar now has an alarm fitted.
The alarm, when pressed, sends out a text not to Mrs Broker but to a couple of close mates telling them that I am stuck in the cellar and need some help.
Looking at the size of my tomahawk steak, I reckon the alarm will be elbowed at around 1.30pm.
As my cellar also enjoys the 40-year investment timeframe. A bit of fake dust will be put to use, as just like the bidders for Origin, my rescuer mates don’t deserve the good stuff just yet.
It needs to be saved for the next generation.
(I will see you all on the 23rd for yet another Yes/No vote. That’s twice in one year.)
Feel free to contact him with your best stock tips and ideas.