AGL Energy, Australia’s biggest electricity generator, says it remains determined to pursue its plan to split despite a bid for a blocking stake by technology billionaire Mike Cannon-Brookes.
In a second tilt at the company in three months, Cannon-Brookes bought 11.28% of the AGL shares through his family’s Grok Ventures firm, making him the largest single shareholder. That’s almost half the 25% of shareholders needed to derail the demerger.
“We have purchased this substantial interest in the company because we fundamentally believe there can be a better future for AGL,” Cannon-Brookes said in a letter to AGL.
“A future that delivers cheap, clean and reliable energy for customers. A future that accelerates the transition to net-zero, and a future that creates opportunities for AGL and value for its shareholders along the way,” he said.
“We firmly believe the proposed demerger is a flawed plan that will fail to achieve these goals. As a result, we intend to vote every AGL share we control at the relevant time against the demerger, and will actively encourage all AGL shareholders to do the same,” Cannon-Brookes said.
He also launched a website on Monday, called Keep it together Australia, aimed at recruiting other shareholders.
Unlike the first round – when Cannon-Brookes teamed up with Canadian asset manager Brookfield – the renewed pitch went public via the media before AGL had received any share move.
The 185-year-old company has been planning to demerge its electricity generation assets, most of which are coal-based, from its retailing arm – and access to almost 4m service accounts for electricity and gas.
“The AGL board is committed to delivering the proposed demerger, which will ensure the value created through Australia’s energy transition stays with our shareholders,” an AGL spokesperson said, adding the split “is on track to be completed by the end of next month”.
The renewed bid for AGL will probably become a talking point in the election campaign. The February approach had included plans by the bidders to take AGL private and accelerate its schedule of closing its Bayswater power plant in NSW and the Loy Yang A power station in Victoria.
The Liddell plant in NSW is on track to close by next April, and closed the first of its four units last month.
The fresh move comes just days after the electricity market operator showed wholesale power prices had doubled from a year ago and were heading even higher.
It also comes only hours after AGL announced what is effectively a profit downgrade of as much as $100m for this year’s profit, following a unit failure at the Loy Yang A power station. That may keep one unit offline until August.
As reported in March, AGL did not think they had seen the last of the Atlassian co-founder, who has made renewables and climate change a regular feature of his public comments, including on Twitter.
A little live snap from my walk - the sun setting over the Highlands.
— Mike Cannon-Brookes 👨🏼💻🧢🇦🇺 (@mcannonbrookes) May 2, 2022
Stunning country we’re lucky enough to live in. Let’s keep it that way.
Happy Monday. Have a kick ass week 😉 pic.twitter.com/TaKkCGdn6F
The first bid, raised after an initial rejection, was for a full takeover of AGL at $8.25 a share, valuing the company at about $8.5bn, including debt.
AGL’s share price closed on Monday at $8.62, down 0.7% for the day, prior to news of a possible bid.
Cannon-Brookes listed three reasons for opposing the demerger. The break-up would create “two weaker, interdependent entities that are more costly to run”, destroying shareholder value, he said.
The Accel Energy part of AGL would also be a “significant risk of becoming a stranded asset given its meaningful coal exposure,” the letter said. It would “have substantial liabilities that impact its creditworthiness and impede its ability to raise the capital required to fund the replacement of its coal-fired power generation fleet and meet its remediation liabilities”.
The third reason is that the company would be “globally irresponsible” in maintaining coal-fired power plants longer than necessary.
“AGL is currently the single largest contributor to carbon emissions in Australia and the demerger will entrench a position that is inconsistent with limiting climate change,” Cannon-Brookes said. “Under the demerger proposal, AGL A [the retailing arm] will continue to source a majority of its energy from Accel Energy, which today generates electricity with 50% higher emissions intensity than the rest of the grid.”
Cannon-Brookes has been building a range of businesses that could well benefit having access to AGL’s customers. These include plans for giant solar farms that could power the Northern Territory, but also supply Indonesia and Singapore via an undersea cable.
AGL shareholders are soon to vote on that demerger plan. “It’s now or never,” is how one insider put it.
