Christmas has arrived early for investment bankers at Barrenjoey and Jarden Australia, who will reap lucrative fees from the failed $16 billion-plus Origin Energy takeover.
Origin Energy expects to pay $77.7 million in transaction costs related to the failed deal, which includes advisory fees, after shareholders led by AustralianSuper, scuttled the takeover offer from Brookfield and EIG Partners.
The $77.7 million in costs, outlined in the scheme booklet of the transaction, includes investment bank and legal advisory fees, as well as administrative costs and staff retention payments.
Vas Kolesnikoff, head of research at Institutional Shareholders Services (ISS) in Australia and New Zealand, said it was a big bill for Origin shareholders. Kolesnikoff earlier in his career worked for investment banks Macquarie Group and Merrill Lynch.
“The fees are quite substantial. It’s disappointing that they are so high and that the deal didn’t go ahead. It just shows you the level of professional services that go into these types of deals that shareholders generally have to foot the bill and the consultants and advisers get to buy new Mercedes.”
‘Even though the absolute number is high, those fees are not out of the market relative to the overall value of the deal.’Steve Harker, a former Morgan Stanley Australia CEO
Steve Harker, a former long-serving chief executive of Morgan Stanley Australia, and also former Future Fund guardian and Westpac director, said critics who question the high transaction costs, and in particular the fees being paid on a failed deal, often forget that work starts on such enormous transactions well before they become public.
The controversial $9.39-a-share bid by Brookfield and EIG Partners has dragged on for more than a year.
“Even though the absolute number is high, those fees are not out of the market relative to the overall value of the deal,” Harker said.
Still, it would have been a bigger pay day for Origin’s advisers, which included Barrenjoey’s Matthew Grounds and Jarden Australia’s Aiden Allen, had the deal succeeded.
Origin Energy estimated it would have paid out $141 million in transaction costs had shareholders approved the deal, which included up to $36.3 million in staff retention payments.
Independent expert Grant Samuel was paid $2.25 million in fees, while Herbert Freehill provided legal advice and PwC tax advice.
Harker said the senior bankers advising Origin, such as Grounds and Allen, would have been involved in every part of the deal. “Most of them are involved alongside the more junior people doing the grunt work. They’ve got to be across every minute detail, and they would be sitting in every board meeting and involved with every telephone hook-up. It’d be very intense for the top person because if it gets screwed up, they’re the ones who’ve got to take the fall, and their advice has got to be accurate every step of the way.”
It’s been a tough year for mergers and acquisitions in Australia, with rising interest rates making it less attractive for companies to raise large amounts of debt to finance deals.
According to Dealogic, the total value of announced merger and acquisitions deals in Australia and New Zealand in the year to date was $US93.4 billion ($140 billion).
Kolesnikoff said the result from the vote was expected, and the ISS had supported it. “A lot of our clients potentially would have looked at it quite favourably.”
From a personal point of view, Kolesnikoff said he understood why it was voted down. “One cannot help but understand AussieSuper and a few of the other shareholders that have said, ‘Look, these assets are actually worth more’.”
Source: Thanks smh.com