The consortium behind billionaire Mike Cannon-Brookes's audacious bid to buy energy giant AGL is preparing to face potentially massive regulatory hurdles, including what is likely to be a broadened "national interest" test.
Even if the $8 billion takeover, or a revised bid, is ultimately accepted by the AGL board and recommended to shareholders, the final decision rests with Treasurer Josh Frydenberg, who has special powers to veto any deal if the national interest risks being compromised.
In the current hot pre-election atmosphere where power prices and household budgets are a constant theme, the Foreign Investment Review Board (FIRB) will be scrutinising potential impacts on the national power grid, especially with plans to rapidly replace old coal and gas generators with renewables.
Former Australian Competition and Consumer Commission (ACCC) chairman Allan Fels says FIRB's recommendation to the Treasurer could be politically charged given the sensitivity to managing the climate transition.
"The big action will be at the Foreign Investment Review Board," Professor Fels told the ABC.
The veteran regulatory tsar, who in the past has overseen high-profile mergers and acquisitions, said FIRB's definition of the "national interest" could be expanded to include a broad range of considerations.
"Absolutely anything you know. Too rapid a close-down of coal if that's what's worrying the government or impact on prices or jobs — whatever," he added.
Brookfield brings competition complications
The ACCC will also be standing by to assess whether a privatised AGL might dilute competition and damage the interests of households and businesses.
However, Professor Fels said the ACCC's scrutiny will be purely competition-based and would not delve into the potential for power prices to rise or fall.
Professor Fels also doubted Brookfield Asset Management's role in acquiring a slice of the Victorian power distribution company AUSNET would be a competition consideration for the ACCC.
Brookfield led a consortium of investors to buy 100 per cent of AUSNET in a $17.8 billion deal closed last week.
"The ACCC will have a look at Brookfield's other assets in the energy field, like AUSNET, but, assuming that's not a problem, it would then go to the Foreign Investment Review Board," Professor Fels said.
However, UBS analysts Tom Allen and Joseph Wong are not so sure a deal would sail smoothly through the ACCC.
"We believe there is no precedent for Australian regulators allowing vertically integrated private ownership across all four components of the electricity supply chain," they wrote.
"If the consortium's proposal were allowed, it would see Brookfield own a controlling interest in:
(i) the largest generator in VIC (Loy Yang A),
(ii) the entire VIC electricity transmission network,
(iii) the largest of 5 VIC electricity distribution networks and
(iv) the largest retail portfolio in VIC.
"We don't believe the AER (Australian Energy Regulator) has the authority to impose structural separation after electricity industry cross-ownership restrictions were repealed from the Electricity Industry Act in ~2012/13.
"However the ACCC (and the Competition and Consumer Act) have the legislative instrument to address cross-ownership in the context of a merger/acquisition.
Brookfield's Asia-Pacific chief Stuart Upson is already preparing for a maze of regulatory hurdles and is seeking to convince the Prime Minister and Treasurer any AGL deal will protect and enhance energy reliability.
"Our business plan is not predicated on higher power prices," Mr Upson told reporters.
"Obviously, we can't control everything. We would hope that in the fullness of time we will be able to sit down with the government and get them comfortable that we are going to do this in a way that will achieve their goals."
In the past, the Treasurer has used his veto powers to block takeovers on national interest concerns.
In 2016, a Hong Kong-owned company was blocked from buying the New South Wales power distributor Ausgrid in what would have been a $12 billion deal.
After an initial rejection, even if a later bid wins the approval of AGL's board and shareholders, regulatory decisions on competition and foreign takeover considerations are not likely to take place until later this year, well after the federal election.
