Origin share price lifts despite price cap casting shadow over $18 billion takeover

The Origin Energy Ltd (ASX: ORG) share price is up 1.5% in afternoon trade on Tuesday.

Shares in the S&P/ASX 200 Index (ASX: XJO) energy company closed yesterday trading for $7.19 and are currently trading for $7.30 apiece.

The rebound comes amid an overnight uptick in crude oil prices and despite the government’s proposed price cap on domestic gas and coal sales.

That proposal saw the Origin share price close down 7.8% yesterday.

Could the price cap jeopardise the $18 billion takeover?

On Friday, the Labor government announced its intention to implement a cap on gas prices in the domestic market at $12 per gigajoule. Thermal coal, used to generate electricity, would be capped at $125 per tonne for domestic sales under the plan.

The plan, supported by many domestic manufacturers, is opposed by both Aussie and international energy companies. Parliament will vote on the proposal this Thursday.

Chevron stated, “We are concerned by the proposals, which lacked consultation and are a significant departure from the open and market-based economic policies expected in Australia.”

Atop throwing up headwinds for the Origin share price, analysts have raised concerns that the price caps could derail or alter the indicative, conditional, and non-binding takeover proposal the company received from Brookfield Asset Management and MidOcean Energy.

The Origin share price soared 34.8% on 10 November after the company reported on the proposal to acquire it for $9.00 cash per share. That offer valued Origin at $18.4 billion on an enterprise value basis.

Origin’s board said it would recommend shareholders support the offer should it become binding. At the time, Brookfield Asset Management and MidOcean Energy were given due diligence access, a phase that is still underway.

RBC Capital Markets analyst Gordon Ramsay is among those who believe the newly announced price caps could impact the takeover.

According to Ramsay (courtesy of The Australian Financial Review):

We think this new legislation, the proposed new legislation, has potential to possibly trigger a material adverse change clause in the Brookfield and EIG $9-a-share bid for Origin Energy.

Under a price cap scenario, Origin would get lower pricing for its APLNG domestic gas sales volumes. This is mainly because of the short-term nature of its APLNG domestic gas supply contracts.

As for Brookfield Asset Management and MidOcean Energy, a spokesperson said, “The consortium notes the federal government’s announcement and will continue its evaluation throughout the due diligence process.”

Macquarie had a more bullish take on the impact of the price caps. The broker stated it did not expect the Origin share price to be materially impacted over the long term.

Origin share price snapshot

As you can see in the chart below, the Origin share price has enjoyed a strong year, up 44%.

That compares quite favourably to the 5% year-to-date loss posted by the S&P/ASX 200 Index (ASX: XJO).

The post Origin share price lifts despite price cap casting shadow over $18 billion takeover appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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