AGL Energy says a premium of at least 30% on its share price will be needed for an extraordinary takeover bid by the tech billionaire Mike Cannon-Brookes and Canadian investment firm Brookfield to potentially succeed.
Markus Brokhof, AGL’s chief operating officer, has also dismissed Cannon-Brookes’ proposal to shut the company’s coal-fired power plants by 2030, saying that was unrealistic.
Responding to the consortium’s offer of a 4.7% premium on the Friday share price, Brokhof said any investment banker would advise a full company takeover required the suitors “to offer a premium of 30-40%”. He said AGL would additionally need guarantees about job security for staff and support for communities affected by coal plant closures.
The comments suggest AGL could be open to selling to the consortium which on Saturday made an offer that valued the company, including debt, at nearly $8bn.
Brookfield’s Asia-Pacific regional head, Stewart Upson, said he believed the initial bid – under which the consortium would also spend up to $20bn on new renewable energy and other infrastructure to replace the coal-fired power plants – was unprecedented.
“I don’t think this has happened anywhere in the world ever before, by us or anyone else – buying a business like AGL with this much thermal [coal] generation with a plan over years, a decade-plus, to retire that and turn it into new generation,” he told Guardian Australia.
“Australians should be excited by it and proud of it because this is going to make a major change in Australia’s emissions profile in a very responsible and managed way.”
Upson said the proposed deal would draw on Brookfield’s $15bn global transition fund, set up to invest in and transform companies with high emissions. He said the consortium was not in a rush and had made no decisions since the offer was formally rejected on Monday. It argues the offer is an effective 18% premium on the average share price over a three-month period.
“Obviously we feel like we put a very compelling offer on the table,” Upson said. “We think the value should be compelling to shareholders relative to the alternative they have in front of them, which is the demerger, where we feel value is probably only going to go down. We’re looking forward to hearing feedback from other shareholders and seeing what people think and then we can assess next steps.”
The consortium bid was lodged in part to prevent a demerger planned to take effect from 30 June, under which AGL would be split in two, creating a new entity Accel Energy that would include the coal-fired power station assets.
The suitors vowed to make AGL a net zero polluter by 2035. In response, AGL defended its own plans to reduced emissions as striking a balance between meeting current and future energy needs while “responsibly” decarbonising.
Brokhof said AGL had yet to receive a response from the bid consortium but a higher bid would be the “natural” next step. “If you would like to get the board’s attention, for sure you need to engage once more, or two times more, or whatever,” he told Guardian Australia.
He said AGL did not believe its coal power plants – including Bayswater in New South Wales and Loy Yang in Victoria – could be closed by 2030. The company proposes to shut the plants no later than 2033 and 2045, respectively.
Brokhof said the company had already invested $4.8bn in renewable energy in recent years and “money was not the problem”. “We know exactly how to find projects, to develop projects, to get all the permits and approvals and then take your financial investment decision, and then go into the construction,” he said. “And then building also the transmission line will take a lot of time.”
The bid is being closely watched in Canberra. While Liberal moderates have welcomed the proposal, the prime minister, Scott Morrison, appeared lukewarm, arguing the government wanted to see coal generators run for the duration of their scheduled operating life. Given the initial pushback by AGL, the government does not expect to be making regulatory decisions this side of the federal election.
Laura Hillis, the director of corporate engagement for the Investor Group on Climate Change, said AGL’s slow efforts to decarbonise its business had left it vulnerable to a takeover.
“It’s really shocking that we’ve ended up in this position where there’s been such a failure of policy and government leadership on the decarbonisation of our electricity grid, but also corporate leadership from the AGL board and executives,” Hillis said.
“AGL have a really straightforward decarbonisation pathway, much more so than many of the companies that we engage with,” such as in steel or chemicals, she said. “But in terms of being really legitimately serious about decarbonising at the pace that’s required for a utility company to meet the goals of the Paris agreement, they are nowhere near that at this point.”
Hillis said Brookfield – which counts $US690bn ($A960bn) in assets and is waiting for final approval to acquire Victoria’s main power distribution firm AusNet – had the scale needed to take on a company the size of AGL but Australia’s superannuation funds did not. “I just don’t think that our investors are at that size and scale that they would be able to put something like this together,” she said.
The federal Labor leader, Anthony Albanese, revealed on Tuesday that Cannon-Brookes had spoken to him about the proposal over the weekend. Albanese said the government seemed to be often out of the loop when it came to significant developments in the energy market, citing the energy minister, Angus Taylor, not learning about Origin Energy bringing forward the closure of the Eraring coal-fired power plant until the night before the announcement.
“This federal government is so out of touch and so isolated that the NSW Perrottet Liberal government had known about this for six months and they didn’t bother to pick up the phone to Angus Taylor or Scott Morrison,” Albanese said.
He said Australia needed “reliable, secure power, and we need it to be the cheapest possible” and that there needed to be “appropriate plans that look after people”. Investors in the transition needed certainty about the rules and regulatory structures for the energy market, Albanese said.
Emma Herd, a climate change and sustainability partner for EY, said investors globally were hunting for opportunities to profit by accelerating the pace at which fossil fuels exited the market. She said it was consistent with Morrison’s appeal to rely on “can-do capitalism”.
“Capitalism will do and is doing,” Herd said. “It’s just a question of whether we get it done fast enough when it comes from a climate perspective.”
AGL’s share price eased by 0.8% on Tuesday to $7.85 after rising more than 10% on Monday.
