Origin Energy Ltd (ASX: ORG) has announced that it will invest an additional £36 million (A$65 million) in Octopus Energy to maintain its 20% equity stake.
This follows a partnership between Octopus and Tokyo Gas that will see the launch of Octopus into the Japanese market.
The Origin share price will be on watch when the ASX market opens this morning, after closing at $4.79 on Wednesday.
What’s the deal?
Under the agreements, leading Japanese utility Tokyo Gas will take a 9.7% equity share in Octopus for a consideration of US$200 million.
Octopus and Tokyo Gas will also establish a new retailer, TG Octopus Energy, that will pursue growth in Japan, one of the world’s biggest energy markets comprising 83 million electricity customers and 25 million gas customers.
Origin says that it’s lifting its investment in Octopus to maintain 20% equity share because the company has seen material value since its initial investment in May this year.
Since May, Octopus has grown UK customer accounts by approximately 300,000 to 1.8 million, and launched in the United States and German markets.
Today’s investment in Octopus is on the same commercial terms as Tokyo Gas, and will be paid in three tranches based on agreed milestones, with 75% expected in FY21 and the remainder in FY22 and FY23.
Commenting on the investment, Origin chief executive officer, Frank Calabria said:
We are lifting our investment in Octopus to maintain our 20 per cent equity share because we see strong potential in our strategic partnership, underpinned by our confidence in Octopus’ operating model, market-leading technology and management team.
We have already reached Origin’s target to have 50,000 customers on the platform by the end of 2020, and we will progressively move more customers to the platform.
Why did Origin invest in Octopus
In May 2020, Origin entered a strategic partnership with UK-based Octopus Energy, taking a 20% equity share for approximately $500 million.
The deal included obtaining a perpetual license to Octopus’ flagship technology platform, Kraken, in Australia.
Origin said that it would deploy the innovative Kraken platform developed by Octopus, which would streamline and automate many interactions between Origin and its electricity customers.
At the time, the company said that the investment would pay for itself relatively quickly, saying the shift to the Kraken platform will deliver immediate savings of $70-$80 million in 2022, growing to as much as $150 million annually within the next five years.
How has the Origin Energy share price performed in 2020
The Origin Energy share price has fallen by more than 50% this year as the coronavirus pandemic took a toll on its export business.
The share price had a 52-week high of $8.82 reached in January, and a low of $3.75 reached in March.
At this price level, Origin commands a market cap of $8.4 billion.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
The post Origin (ASX:ORG) share price on watch today after this announcement appeared first on The Motley Fool Australia.
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