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Australia's $2.5 trln pension funds set to flex muscles in corporate dealmaking

By Scott Murdoch

SYDNEY (Reuters) - A $10.6 billion takeover saga in Australia has put the spotlight on the country's largest pension fund and its rare shareholder activism which, dealmakers said, could spur peers to play 'king makers' in corporate deals amid growing pressure on returns.

The growing size of the funds, managing $2.5 trillion in assets, and their increased stakes in companies - apart from their intensified environmental, social and corporate governance scrutiny - is set to give them more sway in the corporate sector, they added.

AustralianSuper, the country's biggest pension fund with A$300 billion ($199 billion) in assets, in a rare and vocal move is blocking a $10.6 billion bid for Origin Energy, saying the bidding consortium would "short change" shareholders.

Origin on Thursday rejected a "complex" revised offer by the Brookfield-led consortium to buy out the firm, but recommended investors agree to the consortium's previous bid. AustralianSuper owns more than 17% of Origin.

"They (Australian pension funds) are king makers now, you can't treat them as passive investors," said Garren Cronin, managing director at Cadence Advisory, a Sydney-based boutique advisory firm.

"In the past they would respond to the favourable recommendation of the board. That's not the case ... they know they hold great sway."

It is not the first time AustralianSuper has battled with Brookfield, after originally siding against the Canadian fund's bid for Healthscope in 2019. It later backed Brookfield's A$4.4 billion offer for the private hospital operator.

For bankers already battling a major slowdown in deals, the growing influence of super funds in corporate deals could simply mean a change in the way transactions are structured in Australia.

"You can no longer assume that pension funds, or indeed all investors are going to sit by and follow the board's recommendation," advisory firm MA Financial's managing director Ben Wong said.

"If you're a potential bidder, you're going to want to get clarity not just from the board but the biggest shareholders as well before you make a bid."

Contested big ticket merger-and-acquisition (M&A) transactions in Australia have been rare in the four years since Healthscope, but dealmakers think the number of tussles could start to rise as valuations remain a major point of contention in volatile markets.

"In markets where there is heightened volatility or valuation disconnects, it's more likely that buyers will seek to be opportunistic and hostile M&A situations emerge," said Richard Marques, managing director at advisory firm Luminis Partners.

"During those periods, major shareholders like super funds are more likely to be forced into situations where they are thrust into the public spotlight and viewed as playing more of an 'active' or 'activist' role."

While super funds become more active, a clutch of mining entrepreneurs like Gina Rinehart, Australia's richest person, has also emerged to spoil major deals like Albemarle's A$6.6 billion bid for Liontown Resources.

So far in 2023, there's been $16.4 billion worth of withdrawn deals in Australia, Dealogic figures showed, leaving bankers and companies getting creative to get deals over the line.

"There will be more activism from the super funds, it's only natural, as they get bigger and more sophisticated, you're going to see some pretty clever structures," said David Ryan, partner at global law firm DLA Piper.

"You could increasingly see super funds rolling their interest into vehicles and staying invested in the asset long term."

($1 = 1.5074 Australian dollars)

(Reporting by Scott Murdoch in Sydney; Additional reporting Kane Wu in Hong Kong; Editing by Praveen Menon and Christopher Cushing)