Why is the Origin share price rocketing 40%?

The Origin share price is on fire on Thursday…

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The Origin Energy Ltd (ASX: ORG) share price is rocketing higher on Thursday morning.

In early trade, the energy company's shares were up 40% to $8.15.

The Origin share price has since pulled back a touch but remains up 33% to $7.73 at the time of writing.

Why is the Origin share price rocketing?

Investors have been scrambling to buy Origin's shares this morning after the company announced the receipt of a takeover approach.

Origin has received an indicative, conditional, and non-binding proposal from Brookfield Asset Management and MidOcean Energy to acquire the company at $9.00 cash per share.

Based on the Origin share price at the close of play on Wednesday, this represents a massive 54.9% premium. It also values the company at $18.4 billion on an enterprise value basis.

The offer will be reduced accordingly if any dividends are declared and paid in the future. There's also potential for a 3 cents per share increase if the deal closes by the middle of May.

Will the offer be accepted?

The three parties have been in discussions for a while and finally appear to have settled on a price.

Origin revealed that it has previously rejected offers of $7.95 cash per share in August and $8.70 to $8.90 per share in September.

However, on this occasion, the Origin board revealed that it would be prepared to accept the offer and recommend it to shareholders if the proposal becomes binding. As a result, it has given Brookfield Asset Management and MidOcean Energy due diligence access.

Can a deal be done?

It is worth remembering that the proposed takeover is subject to a number of conditions.

Firstly, it would only be recommended to shareholders in the absence of a superior proposal. The parties would also need to enter into a binding scheme implementation agreement on terms acceptable to Origin and an independent expert would need to conclude that it is fair and reasonable and in the best interests of shareholders.

And let's not forget approvals from the likes of the Foreign Investment Board Review (FIRB).

Analysts at Credit Suisse appear to believe this could be the difficult part of the takeover. And with the Origin share price trading at a sizeable discount to the offer price, it appears as though the market agrees and has priced in this uncertainty.

The broker commented: "Foreign Investment Review Board hurdles loom large for proposed acquisitions of this nature, and the Government could use its approvals leverage to extract concessions on domestic gas prices."

Time will tell what happens. But it certainly will be an interesting few months for the Origin share price.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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