Breakingviews: Brookfield energy deal changes antitrust climate

Australia has adjusted the scales for judging the merits of M&A deals. On Tuesday the Australian Competition and Consumer Commission approved Brookfield Asset Management’s joint A$18.7 billion ($12 billion) bid with MidOcean Energy to buy and break up Down Under power company Origin Energy, even though the regulator remains concerned that the transaction could give the Canadian investment firm an unfair edge. Outweighing that was the prospect of a speedy reduction in the country’s greenhouse gas emissions that could result after completion from a deep-pocketed Brookfield building 14 gigawatts of renewables. Any wannabe robber barons of global warming need to cool their heels, though: the ACCC has some stringent terms for giving the nod.

The main problem the regulator helmed by Gina Cass-Gottlieb was wrestling with was Brookfield’s existing control of AusNet, the electricity transmission network that a Brookfield-led consortium bought last year. The concern was that controlling Origin’s power generation and retailing business would effectively give the $850 billion investment giant run by Bruce Flatt a vertically integrated business that left rivals at a disadvantage. It didn’t help that Brookfield, in submissions to the ACCC for the Origin transaction, downplayed its day-to-day role in managing AusNet.

So the agency and the buyer have agreed to a set of terms that dictate what Brookfield isn’t allowed to do, assuming the Origin takeover also gets the nod from the Foreign Investment Review Board and the target’s shareholders. It includes proscriptions that ought to be old hat to most financial institutions, like ensuring the Brookfield investment teams for the two businesses are kept separate, along with IT systems and pay structures.

The agreement also, though, prevents AusNet board members and others from becoming directors at Origin. It mandates that Brookfield-appointed board members at AusNet effectively recuse themselves from any decisions about connecting Origin’s power generation to the grid; demands that Brookfield provide a plan within four months of completing the deal laying out its yearly targets for its planned A$20-A$30 billion expenditure on renewables over the next decade – and updates it each year; and the ACCC reserves the right to review the agreement. In addition, it essentially prohibits Brookfield selling both businesses to the same buyer in the future.

That’s a decent framework for trying to prevent any untoward collusion – and provides a handy roadmap for watchdogs everywhere to build on as climate-driven M&A picks up.