Two years ago, Australia’s largest super fund, the $300 billion AustralianSuper, had a review of its attitude towards investing in some of Australia’s largest companies.
The fund, which had been keeping a low profile despite its growing size, decided it was time to step up and become a larger player in companies which it saw as having attractive long term investment prospects.
The change – some might call it more of an evolution – in strategy was agreed on jointly by AustralianSuper’s long-term chief investment officer, Mark Delaney, and its head of Australian equities, Shaun Manuell, who had been promoted to the job in September 2020.
As the largest single investor on the Australian stock market, and given the fund is increasingly moving its investments under the umbrella of in-house teams, it was deemed inevitable that AustralianSuper would have to make some decisions about how active it would be.
Fast forward to 2023, the fund’s strategy is becoming increasingly evident in its higher profile on the corporate dealmaking scene.
The fund is set to play kingmaker in the future of ASX-listed Origin Energy where it is the largest single shareholder with a 13.68 per cent stake in the company, which is being courted by Canadian global investment giant Brookfield.
While Origin’s board decided back in March to accept Brookfield’s offer of which is now valued at around $8.85 a share, AustralianSuper has a different view – seeing the offer as significantly undervaluing the company, Australia’s second largest energy supplier.
The Australian Competition and Consumer Commission (ACCC) has given the bid the all clear, on the basis that Brookfield is promising to invest $20 to $30 billion in building out Origin’s renewable energy capacity – removing one potential obstacle for the deal to go ahead.
Given that Origin, which owns the Eraring coal fired power station in NSW, is Australia’s fourth largest emitter of greenhouse gas, the ACCC sees this promise as being a net good for Australia, despite the fact that it will lead to some lessening of competition in the energy sector.
But AustralianSuper is holding out for a higher offer declaring in a statement in September that Origin’s share price was “substantially below” its estimate of the company’s long-term value.
The bid needs the support of more than 75 per cent of shareholders voting on it.
The company’s other major shareholder, Perpetual, which owns some three per cent of the company, has also said the bid undervalues the company.
Rising corporate power
AustralianSuper’s role in the future of Origin will be another step forward in the role of industry super funds on the Australian corporate takeover landscape.
The fund, which has some $60 billion in Australian shares, has increasingly key stakes in a range of top Australian companies. It now owns more than 10 per cent of Origin Energy, Computershare, the Lottery Corporation, Orica and Ampol.
It has more than five per cent of Woolworths, QBE Insurance, Aristocrat Leisure, James Hardie Industries, and the Endeavour Group.
Its big shareholdings also include BHP, where it owns 3.44 per cent and the big banks. It is the largest single shareholder in the Commonwealth Bank, with almost 3.5 per cent.
It’s a situation that could increasingly see it having to decide the future of some of Australia’s household names if they come into play.
But while it now sees itself as an active investor, it makes the distinction of not wanting to be an activist investor – one which takes a stand on a corporate deal for the sake of a principle, rather than as one with a long-term interest in the future of the company.
It is an approach which will see its name increasingly mentioned in corporate plays into the future.
It is in contrast with the much smaller health industry super fund, the $76 billion HESTA, which was a small shareholder in energy company AGL but spoke out strongly in its opposition to the board’s proposed demerger, publicly backing much larger shareholder, Mike Cannon-Brookes’ Grok Ventures.
HESTA chief executive Debbie Blakey was vocal in her opposition to the demerger plan.
It is a mark of its style that AustralianSuper did not make a public statement on its view on the Brookfield offer for Origin until September when it announced it had spent another $150 million buying another one per cent of the company to take its holding up to almost 14 per cent.
The fund is also watching closely the boardroom tussle at drinks company, Endeavour, the owner of the Dan Murphy’s liquor chain, the BWS group and more than 350 pubs, where it also had a key stake of 8.37 per cent.
In that case, there is no offer on the table for Endeavour shareholders but hotels billionaire Bruce Mathieson, is unhappy with the company’s performance and is seeking to put pressure on the company with the appointment of former Woolworths executive, Bill Wavish, on the board at the annual meeting on October 31.
AustralianSuper has had meetings with Wavish as well as Endeavour’s chairman Peter Hearl and CEO Steve Donohue ahead of the AGM.
As the third largest shareholder, after Mathieson and Woolworths, the fund also has the potential to be a kingmaker at the AGM.
Back in 2005, the involvement of industry super fund investment vehicle, Industry Funds Management, raised eyebrows on the corporate scene when it became involved in a takeover battle for ASX listed Pacific Hydro.
It was a groundbreaking deal which signalled the arrival of the industry super funds as the new kids on the block when it came to the Australian corporate deal making.
Since then the industry super funds have become involved in many big infrastructure deals including the $25 billion takeover of Sydney Airport.
But as the biggest player, with the biggest inhouse team of investment managers, AustralianSuper is now finding itself at the forefront of having to make some big decisions with its increasingly large stakes in ASX listed companies.
The fund has been involved in smaller deals in the past.
In 2019 it sold its 16 per cent shareholding in Healthscope to Brookfield- after its initial joint bid for the company with private equity player BGH was overbid by the Canadian giant.
But the stakes are now rising.
AustralianSuper’s strategy involves a focus on those companies it sees as having long term value for it as a long term investor.
While that could see it sell its shares to a bidder, it could also see it staying on as a long term shareholder.
It is an approach which involves selective investing.
The fund has a holding in Qantas through an external manager but has not sought to accumulate a significant shareholding in the airline.
But for those other ASX listed companies where AustralianSuper now has a sizable stake, it may be a case of ‘watch this space’.
|Top 20 ASX Equity Holdings||A/S Ownership – Value (%)|
|1.||BHP GROUP LTD||3.44%|
|2.||COMMONWEALTH BANK OF AUSTRALIA||3.49%|
|4.||NATIONAL AUSTRALIA BANK LTD||3.94%|
|5.||WOODSIDE ENERGY GROUP LTD||4.34%|
|6.||WOOLWORTHS GROUP LTD||5.62%|
|7.||MACQUARIE GROUP LTD||3.64%|
|9.||WESTPAC BANKING CORPORATION CORP||2.75%|
|11.||QBE INSURANCE GROUP LTD||8.56%|
|12.||ORIGIN ENERGY LTD||12.69%|
|13.||ARISTOCRAT LEISURE LTD||6.65%|
|15.||ANZ GROUP HOLDINGS LTD||2.11%|
|16.||THE LOTTERY CORPORATION LTD||10.73%|
|17.||JAMES HARDIE INDUSTRIES PLC||6.67%|
|18.||ENDEAVOUR GROUP LTD||8.37%|