Inside the biggest corporate deal of the year

Adam: [00:00:25] Hello and welcome to Comedian versus Economist. We demystify the world of money and help you get a handle on the bigger picture. My name's Adam and we're joined, as always, by my little older brother and real life economist Thomas. Hi, Thomas.

Thomas: [00:00:39] Yeah, good. I'm doing very well. Thank you. 

Adam: [00:00:40] Massive show coming up, Thomas. But everyone in the whole entire world right now is talking about f tsx, the crypto exchange. It's the biggest story going around. So we wanted to make sure we gave it the proper treatment. So we actually released a separate episode all about FTX X, which is in your podcast feeds right now. If you haven't heard it, there was a lot to unpack. So yeah, hopefully that's good news to you. Christmas has come early. You'll find that available right now in your regular CV feed. And also don't forget the dive and also Crypto Curious two other great podcasts from Equity Mates Media also covering that story. So make sure you check those out as well. But on today's show Thomas and last week we saw the ah what response when the US Fed hiked interest rates and I told you the market had two reactions and this week we got Ray as the US inflation data was released. Apparently as a nation we're taking too many sickies and it's costing the economy big time. Thankfully, a new study has found a way to blame that on young people. But first, we're going to hear Brookfield Asset Management's origin story, not a story about where they came from. I just want to buy Origin. Thomas, what's going on? 

Thomas: [00:02:07] If I was calling it a monster takeover bid, it's the biggest of the year. So in terms of mergers and acquisitions it was a big, big deal. A big deal in dollar terms, more so in terms of the impact on the energy market. Yeah. So Brookfield is teaming up with IG, which is another asset manager, and they're offering $18.4 billion to buy Origin and take it off the ASX and take it private. Yeah. Yeah. 

Adam: [00:02:36] So is that a good thing? 

Thomas: [00:02:40] Yeah. Well, in and of itself it's neither here nor there, but it depends, depends what they're going to do with it. I'm not quite. I like it. I'm. I'm a fan. [00:02:49][8.4]

Adam: [00:02:49] Okay. Yeah, I. 

Thomas: [00:02:50] Just want to give a tick of approval. 

Adam: [00:02:52] So Brookfield, they were the, they were last teaming up with Mike Cannon-Brookes to buy AGL. 

Thomas: [00:02:58] Yeah, that's right. So they had that, that the, the, the other AGL offer that got knocked back. Yeah. And then Brookfield was part of that one as well. But, but yeah it's, I mean it's interesting to the two deals like they're completely at odds with each other. So AGL, the bid for AGL, which Brooks and Brookfield launched, they made the offer on the Friday, it got leaked on the Sunday and then on Monday the board killed it and they were only offering a takeover premium of 11%. So sort of people saying in hindsight that looks a bit of a little bit of a farce, it's a bit sloppy, right? Maybe it was an opening play, it was an ambitious play. But again, but, but it looks a bit sloppy. You compare that with the origin deal origins, paying a 55% premium and $9 a share compared to 11% for the AGL bid. So 55, that's a really big deal, they've been in negotiations with Origin's board for three months and keeping it secret and Origin's board has negotiated up to that price. Yes. I mean like in the seven somewhere they've negotiated it up into the nines. Wow. Yeah. Saying it just looks a lot better, it looks a lot more professional in that sense of like they've they've managed it. Both parties have managed this negotiation really well. And because the board came out because Brookfield and EOG said we want to buy it and the board came out at the same time said we think we should, so we think it's a good deal. 

Adam: [00:04:24] Right? That's a very different narrative to the AGL thing which was almost hostile, kind of like where we're buying it because we want to run it into the ground. Well, quite the opposite. If it goes according to plan, pollution to the earth is quite the opposite of what Cannon-Brookes was doing to achieve by buying AGL. No, he wanted to shut it down. They wanted to shut down the coal fired plan. 

Thomas: [00:04:51] Yeah, that's right. Like him we wanted to stop the demerger so they were planning to separate the retail and their generation. Yes. And he said no, that's not a good idea. Right. And so that's still playing out tomorrow. We're recording Monday night. Tomorrow we'll see if Cannon-Brookes gets his board nominations up onto the board. Hi. Looking like he might he's got four looking like he'll get three of the four. So that's still going on. But it's kind of a side show now to what's happening with Origin. So it's true. Oregon's leading the way. And I mean, the interesting thing is that, you know, you think about where this leaves AGL and Origin, they're both competing in the same place, but Origin is already a long way further ahead on the road of decarbonisation. It's got the, the eroding plant in Lake Macquarie and that's the oldest and clunky first and most polluting coal fired power station in the country. But they're already well on the way to shutting it down and they're going to do that fairly soon. AGL still has three coal assets in operation and they're not looking to shut down until 2030 somewhere. So ours is closing. There's already planning to close acquisition in 2025. 

Adam: [00:06:07] I think AGL and I'm even convinced that they're necessarily a bad idea. 

Thomas: [00:06:12] Yeah, this. 

Adam: [00:06:15] I mean, sure, we'll shut them down. We're going to do a bit more digging and just work out if they really need to be shut down. But yeah, we hear what you're saying. We hear we're hearing you. But yeah, we'll just say we'll just say without plays. 

Thomas: [00:06:29] Out says yes that origin's already a long way further ahead than the then got Brookfield coming in and saying we're going to take it private. Taking it private means that not paying shareholders a dividend, which should mean $500 million a year, means that they can just reinvest back in the business. 

Adam: [00:06:46] Right. 

Thomas: [00:06:46] So that gives them a leg up. They've also brookfield's also saying they're buying it at at this at at this price, but they're also investing 20 billion over the next seven years. Yeah. Well to help with the Yeah. Help with this decarbonisation. So is a lot of money coming into origin to make this transition happen. AGL is flat footed. They're already behind the curve in terms of these ageing coal assets which they need to shut down and they don't have $20 billion in the bank the origin now has. So it's like starting, things are really starting to shift against AGL. Right? 

Adam: [00:07:26] Is not not this going to have a big impact on prices too like because AGL is a big gas player. Right. And we saw with gas and electricity prices going through the roof recently we looked at a couple of weeks ago on the show we looked at Western Australia and how they had been maintaining their own reserves and keeping prices down. Does any of that change the market?

Thomas: [00:07:51] Change, the structure is changing. So Origin Well yeah. Origin with Brookfield will keep the generation and the retail assets and then they're going to so the LNG plant that they own they've got to know whether or not they are going to like a 27% stake. I think it is in Gladstone's LNG, right. They pump LNG. Yeah, 27 and a half per cent and you're going to sell that to IAG. So is, is, is an interesting sort of asset manager. They only do energy assets, that's all they invest in. So they're going to take that, that LNG processing stake and take it off their hands. And that's the politically sensitive one. Like people saying like, you know, it's not such a great thing. You're not going to be in that. So that kind of like frees origin up and really helps them with their decarbonisation with Brookfield. So that's why this is an interesting shift in the market. But the other interesting thing I think was really interesting was the Eagles chairman came out and said like, yeah, we're kind of expecting there to be a windfall tax. And he's saying like the chief executive, Blair Thomas, he's saying we understand the pressures that Australia's going under and we're seeing it in really every other market that we operate around the world. We're a big producer in the UK's North Sea and the UK has introduced a windfall profit tax. You've got market intervention in Germany right now and so this is a phenomenon that's playing out around the world. And so I think why I read that is like saying, yeah, we're kind of it's kind of reasonable and it is reasonable. Like energy prices have spiked because there's a war in Ukraine is a terrible thing. It's not a great outcome that consumers are paying extreme prices while energy companies are making out like bandits. 

Adam: [00:09:39] It's not because of a humanitarian crisis. Crisis. Yeah. So yeah, there's human suffering over there, which has led to human suffering here, which may make some massive profits for any humans involved in energy production. 

Thomas: [00:09:56] There's more and more talk about some kind of either export levy or windfall profit tax or something like that. The Treasury released a report in Australia saying that they think they want to see something like that, so it's looking like it's going to happen. And EOG is the newest player on the block and says that they expect something to happen. Hmm you know they're probably got a view on what it should be but it probably if anything, I think it's, you know, it's smoothed the way towards some sort of windfall. Poll tax, which was probably coming already. The other thing is, if you get that domestic reservation or an export levy, that drives down the local price. Right. So to the extent it ushers in some sort of windfall tax export levy, domestic reservation, or something like that, it potentially puts some downward pressure on energy prices. 

Adam: [00:10:44] Hmm. Is that a domestic reservation? Is that a government thing or is that something that origin would implement themselves as a private company? 

Thomas: [00:10:52] Oh, I suppose it could be voluntary, but I think it would not, it would normally be a government mandate. Well, I think but theoretically, none of. 

Adam: [00:11:01] This is happening with a windfall tax. They're going to look to do us any favours. 

Adam: [00:11:08] Right, Thomas. US inflation data came out last week. What did we learn? 

Thomas: [00:11:13] Yeah, it was. It was a nice number. Markets liked it. It was 7%, 7.7% annual inflation for October. That was down from 8.2% in September and was better than expected. So. 

Adam: [00:11:25] Right. 

Thomas: [00:11:26] Yeah, right. Yeah.

Adam: [00:11:28] Right out of the woods. We made it. We can all start buying up stocks again and again. 

Thomas: [00:11:35] And that's what markets did. Nasdaq jumped 7% in a day. S&P up 5.5%, both the biggest jump since the immediate rebounds out of COVID in March 2020. Big tech had a big day. Apple was up 9%. Spotify 10%. Metal 10%. Nvidia 14%. Square 18%. The list goes on since but yeah and that's that's. 

Adam: [00:11:59] This is the new normal they talked about post-COVID the new normal will be shares just going up and down buy in like 5% and currencies. Down.

Adam: [00:12:12] Yeah. 

Thomas: [00:12:13] I don't know. I mean, we talked about this a little while ago saying that market rebounds after a bear market tend to be rapid like it's quite easy to miss the rebounds because they happen in chunks and early like so you typically bounce back but you also have a number of false signals on the way. So it's quiet.

Adam: [00:12:33] So which ones this we want and you can tell. [00:12:35][1.9]

Thomas: [00:12:35] Us in. 

Adam: [00:12:35] A year or two. 

Thomas: [00:12:36] Yeah, I'll tell you. Yeah. My punt would be a false signal. Oh yeah. Like you look at it like square up 18% on inflation running at 7.7%. 

Adam: [00:12:50] 1.5% decrease in inflation, 20%, 20%, 20% up from square. Um, nothing about that makes sense. 

Thomas: [00:13:02] Yeah, because like, 7.7% is still not a great number. It's better. It was better than expected and it's down. So which suggests maybe inflation is peaking, but inflation's not down. It's just lower than what it was. We're still wanting to get it down towards 2 to 3%. Hmm. So we're still a long way off that. 

Adam: [00:13:21] The markets of the future look no right and.

Thomas: [00:13:24] That's true. 

Adam: [00:13:25] And so they're just taking it presumably as like this this is the beginning of the year of deflation. 

Thomas: [00:13:34] Oh yeah. 

Adam: [00:13:36] So disinflation. Sorry. So, yeah, that's right. 

Thomas: [00:13:39] That's right. But if it's there, it's a lot to hang your head on. Just that, that number. I mean we also are also like day trading, you know, day to day price movements are a lot driven by just momentum. You know, it has a big factor. There's always that attempting to make that narrative such and such data point happened. Markets as a collective interpreted it in a single way and decided to pump stocks. Like. It just never happens like that. 

Adam: [00:14:09] Like, yes. 

Thomas: [00:14:10] It's always tempting to tell that story. 

Adam: [00:14:12] I did hear every place in I. I've started listening to an economics podcast where it's a financial NAB morning call. It's quite good 10 to 15 minutes and that's and there's a couple of side stories as well. So there was also some kind of signal that China's zero-covid policy, you know, whilst they weren't getting rid of it, they were kind of just kind of going, you know what, it's five days, not seven days anymore. And so markets were like, oh, we really like that too. And there was like a little there was a couple of little wins for Ukraine in the war against Russia. And so markets because that's another big one. So I think those are the two other massive stories, right? Like China's Zero-Covid. If there's a sign that that might be ending, then that's a huge thing. And if there's even a glimmer of hope or a signal that the war in Ukraine is ending, then that could be a massive thing, too. So maybe those things, they start adding onto each other and the markets put all that together and went, yeah, newbeauty let's go off to the races.

Thomas: [00:15:19] Yeah, yeah. I think that's right. That said, the Federal Reserve governor Christopher Walla. So he's not the chair but one of the governors that sits on the Open Markets Committee, he was in Sydney and he said the market seems to have gotten way out in front of this. The biggest one is the CPI report. 

Adam: [00:15:41] Fairly in his press release, he used nine days where they spell the word the way he was. He was talking at the UBS.

Thomas: [00:15:49] Australasia conference and as far as notes, his bemusement was clear from the way he stretched that word way just about as far as it would go. 

Adam: [00:15:58] We need more of that. We need more personality in economics. Hopefully we try and bring that to you on this show. But yeah, I like that federal governor.

Thomas: [00:16:07] Reserve governors say markets are crazy.

Adam: [00:16:11] I'd like to. See Fed Chair Powell with a few more, maybe open with a joke next time it is that he's at the Fed meeting. When he fronts the media after the meeting, it raises interest rates. Yeah, rip off a few one liners.

Thomas: [00:16:28] So it's good finally that we saw some evidence of inflation starting to come down. But I just cannot stress enough this one data point. You're going to need to see a continued run of this kind of behaviour and inflation slowly starting to come down before we start thinking about taking our foot off the brakes. So everybody should just take a deep breath and calm down. We've got a ways to go. 

Adam: [00:16:48] Still, I say we go. We need a bank. Chris, your words mean nothing to us. We're buying. All right. Why don't we pause here? Have a quick word from this week. Sponsor and be back with more comedians versus economists right after this. All right, Thomas, I want to talk to you about sickies. Sick leave. I found this article during the week. You know, I read extensively. This was during my perusal of news dot com that I. And apparently sick days are going to cost us $24 billion by the end of the year. What's going on? 

Thomas: [00:17:32] Yeah, that was a study conducted. It was commissioned by Rentokil initial right, the hygiene and pest control company. Mm hmm. Yeah, they found that. Yeah, that's sick. Days are costing the economy $24 billion a year. Also, that gen-z are nearly twice as likely than baby boomers to call in sick with the majority of young workers pulling the pin with minimal symptoms. Hmm. According to Andrew Stone, managing director.

Adam: [00:18:02] Say hard to find good workers anymore. 

Thomas: [00:18:06] I know. 

Adam: [00:18:08] I mean, you could also read that, of course, as Gen Z, almost twice as likely to listen to government health advice as boomers. And they'll come in if you've got any covered. And it's almost like they find its edge and say the massive advertising blitz that was on television for the last two years that said, if you've got any symptoms, stay off public transport and stay out of the office. Boomers are like, no one tells me what to do. 

Thomas: [00:18:41] I like a look at this one. I'm like, Yeah. So it's commissioned by Rentokil initially. So these guys did the hygiene, pest control and some conglomeration. I think they do like trough lollies. Don't know how I see rentokil initially in public areas. 

Adam: [00:18:57] Like that public toilet sanitising thing. Yeah, probably. Yeah, I think so. I think they're all they're all about. Well, I think the two companies that they rent oil from were like the pest pest extermination company. I'm making a shooting motion with my hands out of the. And. And then. And then. Yeah. Initial is like a hygiene company. 

Thomas: [00:19:19] They do disinfecting and cleaning and stuff. So they've got a vested interest in hygiene and sanitation. And then they're doing a report on how much sick days cost the economy. It's $24 billion. Is that a big number? It sounds big, is it not? It sounds big. But like, how's it compared with comparable sized economies or is it up from last year or down from last? Like a number out of context. Isn't that useful? It kind of sounds like news is not actually that interesting. Like shooting.

Adam: [00:19:54] Says. 

Adam: [00:20:01] Oh, we're going to look into it. We're just going to question the number. Yeah, yeah. 

Thomas: [00:20:05] No, no. There's no there's no. This is the first time they've done the study. Hmm. They haven't done it before, so it's just. It's just it's just so it's it's a number that has that that talks about the importance of hygiene is a way. So what's going on here is that Rentokil initially says we need to get some coverage in the papers and push the conversation around how businesses can improve sanitisation or buy more. I'm sorry. No, the first step is how do we get businesses to buy more of our product? Well, let's tell them that having sanitation is important. Why is it important? Well, it's costing money because people are getting sick. Okay, great. That's our angle. Let's get a study that talks about that. All right. So let's well, let's just put a dollar. How do we do that? Well, let's just put a dollar number on how much sick days are costing us. Hmm. Right. And then. Then we'll get news, something in News.com that today you and then that'll push the conversation and hopefully get more people to buy more of our stuff. Hmm. That's what's going on here, right? And you see data points like this all the time.

Adam: [00:21:07] Right. So it's not just the general communities and I must have it. But so and I was watching today or sunrise or something over the weekend, and that's where I first heard the story. And so I did. I was like, Oh, this is like they mentioned, it's costing the economy. And I thought, Brilliant, I've got something I can give to Tom. He's like, He'll be all over this. And I went and Googled it and this was the only one I could find was what was on these dot com. I couldn't find any other reference to the story. So. So I think maybe yeah. It's possibly true that yeah. It's a, it's a, it's a ruse. 

Thomas: [00:21:45] Yeah. So, and then, you know, who knows how, how solid the survey start construction is like if you're going to get reasonable results. They surveyed 200 employers. It doesn't seem like a large sample. Maybe it is if it was a well selected sample of employees that might be representative but maybe maybe not. You don't know it was conducted by Frost and Sullivan. We don't know anything about that. I know we do. They're American. 

Adam: [00:22:12] And they're an. 

Thomas: [00:22:12] American business consulting firm offers market research analysis, growth strategy consulting and corporate training. Frost and Sullivan also issue industry awards based on research, using a proprietary methodology, which is sometimes based on a single article produced by the receiver of the award. Organisations that receive a Frost and Sullivan Award must pay a fee to communicate the outcome. 

Adam: [00:22:35] To the public. Really? Yeah. What a system. Yeah, that's brilliant. So I guess we. What are you calling us of the year? If you want to tell anyone, you need to give us of fucks. Oh, that's awesome. Well, tomorrow, right? Oh, yeah. Great business model. Genius. Yeah, they're the guys behind the study. 

Thomas: [00:22:59] Right. Which also. And the other thing is they found that Gen Z was nearly twice as likely as baby boomers to call in sick. Hmm. Which is obviously then as all the baby bees go. Oh, yeah, Gen Z, the weakest piece, hopeless. I guarantee you. 

Adam: [00:23:14] That resonates with News.com, the daily readers. 

Thomas: [00:23:17] Well, it does that. I also reckon I can guarantee you that Rentokil initially has a list of their purchasing managers at all of their clients with that and there's a column in that spreadsheet that has their age. 

Adam: [00:23:29] Yeah. 

Thomas: [00:23:29] And I'm pretty sure that they're all over 50. 

Adam: [00:23:34] This is getting into it now. Life is what I thought. This is not where I thought this story would go. I thought you'd commend me on why I discovered some solid economic data and bring it to the podcast. And you've taken it to a slightly darker place, which I quite like. Yeah, yeah.

Thomas: [00:23:54] Yeah, yeah. So that result a Gen Z is more than twice as likely to call in like one they probably should be. If they are actually sick, they should be doing the right thing. 

Adam: [00:24:03] I'm telling people to do that for two years. 

Thomas: [00:24:05] Yeah, that's right. But maybe it's not, maybe they've just cooked that article up and saying like, you know, what would really resonate with our purchasing managers is something that sticks the boot into millennials and Gen Z. I love it. 

Adam: [00:24:17] That. Yeah. I think about the other thing and I don't know if this is the right term for it. I think you might have used the term externalities before, which I think is like external factors that might affect this data as well. 

Thomas: [00:24:32] And remember what that means now, isn't it? 

Adam: [00:24:35] Oh, and I've felt good saying it. But there was when the Queen passed away and we had a public holiday on Thursday. Like if you want, if you're trying to have less sick days in the economy, then don't spring a public holiday on people on a Thursday. Like even my outlook calendar at work was like, I guess we're booking on Friday as focussed time. Like that's just. That is that. Is a recipe for sick days. So yeah, like if you've got public holidays on Tuesdays or Thursdays, then I imagine that's going to push up your sick days in the economy as well, costing us again, millions. And again, it's those Gen Z people going to call up. 

Thomas: [00:25:28] Yeah, and that's a good point. Frost and Sullivan didn't look into it. 

Adam: [00:25:31] The fact that before we go today, I just want to get a couple of listener emails that came through listener messages, which we really love here on the show. Lucy sent us an email, said she vaguely remember listening to a story where a former tech genius is handing out crypto for free in an effort to establish a minimum living wage. Lucy I can help you out with that because she couldn't remember if it was on our podcast or some other incredible economics podcast that she listens to. I did go back and I found out it was in October 2021. We did an episode called Weaponizing Corporate Power in the Pacific, but we were talking about World Coin, which was talking about, yeah, raising a I think, yeah, giving out like a dollar worth of crypto or something. If you handed over your identity and put your identity on the blockchain, which I think if it taught us anything this week, it's that you should be putting more of yourself into the crypto sphere. So hopefully that helps you. Lizzie. Thank you very much for your email and this is a good one. James sent us a message on Instagram at CV podcast. And Thomas, this is something I've heard a couple of people say now, but James actually said, I've noticed Thomas has developed a sense of humour, which is interesting. So kudos to you. Yeah, nice to have someone else funny in the family. No one ever compliments me on my own. Gaining an economic sense at all, except that that did it the other day. But that's coming off a very low bar. Low bar? Yeah. It gets you through high school and messes up his expectations and I remember I went to him. I was like, Dad, look, I can Thomas realises, hey, guys. Adam, you're 25 years old. You should be able to talk like this. Thank you, James, for your message. And yeah, thanks. Good to hear that you're enjoying the lulls. Hopefully we're providing enough of them as well as some good information for you. And thank you to everyone out there who tunes in each and every week to comedian versus economist. We really do appreciate it. Don't forget to go and write the show. Leave us a review. That would help us out enormously. And of course, check out the other episode if you haven't heard it yet. We did cover off FTX in great detail this week as a bonus episode to go and take a listen to that if you haven't already. But other than that, it's bye for now. Catch the next time.