Australia's Origin Energy to buy 20% stake in UK's Octopus Energy

MELBOURNE (Reuters) - Australia's top power and gas retailer, Origin Energy ORG.AX, agreed to buy a 20% stake in UK retailer Octopus Energy for A$507 million ($327 million), with an exclusive license to use its technology in Australia, the companies said on Friday.

FILE PHOTO: The logo of Australian energy company Origin is pictured in Melbourne, Australia, July 3, 2016. Picture taken July 3, 2016. REUTERS/Jason Reed

Origin said the partnership with the fast-growing UK firm and use of its Kraken platform would radically improve Origin’s customer service, cut its costs sharply and give it international growth opportunities.

Origin Chief Executive Frank Calabria said the deal was focused on securing the low-cost technology and user-friendly system Octopus has developed.

“Our main game is about delivering on that retail strategy and doing it fast and getting ahead of our competitors, which I think we’re putting ourselves in a good position to do,” he told Reuters in an interview.

International growth for Origin would not come from making a bid for Octopus but from the UK company’s own expansion.

“I’ve not gone in to buy 20% with the objective of taking them out,” Calabria said.

The push comes as Origin faces pressure from the Australian government to cut retail tariffs and as it looks to differentiate itself in the transition to cleaner energy, allowing it to offer products tailored to customers adopting rooftop solar power, home batteries and electric cars.

“It will have significant benefits for our customers and also our shareholders,” Calabria said.

Octopus said the deal, under discussion since 2019, values the company at well over 1 billion pounds ($1.26 billion) and said it would use the funds from Origin to develop its technology and expand into more markets.

“We’re thrilled to be able to accelerate our global expansion to make the green energy transition cheaper and faster,” Octopus Energy founder and chief executive, Greg Jackson, said in a statement.

Octopus, among a number of smaller brands challenging Britain’s traditional power suppliers, last month agreed to work with German utility E.ON to revamp its UK retail business and in January acquired French firm Engie’s 70,000 British residential customers.

Origin said it would pay Octopus A$134 million up front and A$373 million over four financial years.

The transfer of Origin’s electricity and gas customer accounts to the new platform would result in pre-tax savings of around A$75 million in the year to June 2022, rising to around A$125 million annually from 2024.

That would come on top of A$100 million in cost savings Origin aims to achieve by June 2021.

The platform switch will cost around A$90 million, Origin said.

“For our customers, they will have a vastly simpler experience,” Calabria said.

Reporting by Sonali Paul; Editing by Kim Coghill