AGL Energy: Cannon-Brookes ‘plotting third AGL bid’

AGL Energy boss Graeme Hunt says its largest investor, Mike Cannon-Brookes, may be plotting a third takeover attempt for the power giant.

Mike Cannon-Brookes and AGL remain at war over a planned demerger for the 180-year old power giant. Picture: Brtta Campion / News Corp.

AGL Energy chief executive Graeme Hunt says its largest investor, Mike Cannon-Brookes, may be plotting a third takeover attempt for the power giant and that shareholders are confused about the billionaire’s intentions.

The technology mogul and AGL are divided over a planned demerger, with analysts speculating Mr Cannon-Brookes’ Grok Ventures could pounce on either the entire company – should he foil the split – or its coal arm Accel Energy if the division of its retail and generation assets goes ahead.

Mr Hunt said shareholders were unsure of Mr Cannon-Brookes’ intentions.

“They just don‘t quite understand what the endgame there is, unless he is trying to do something to reduce the value of the company in order to pursue what might have been his first strategy when he had a partner – to take control of the company on the cheap and to put the value of the energy transition in his pocket, not in that of our broader shareholder base,” Mr Hunt said.

Mr Cannon-Brookes, one of the country’s richest businessmen, intervened a week ago to stop an attempt by AGL to hive off its coal-fired stations, less than two months after the power giant rejected two takeover offers with his co-bidder, Brookfield. AGL said its biggest shareholder declined to share his plans for the company beyond blocking a planned demerger during a meeting between the pair, an ongoing point of tension between the warring sides as they jockey to win over shareholders.

Adding to tensions, Mr Cannon-Brookes’ AGL stake has been called into question by two influential proxy advisers, who have raised concern over the billionaire’s voting rights.

The tech billionaire built his 11.3 per cent holding in AGL through a series of swaps and derivatives via JPMorgan, but concerns have been raised because partially borrowed stock can be recalled with three days’ notice.

With the shares representing a potential blocking stake in AGL’s demerger, Ownership Matters said it represented an act of “sorcery”. The influential adviser, in a post on Twitter, said AGL’s financier JPMorgan had received $40m through loan agreements.

“Any lender is also transferring their rights to vote for a pitiful fee ... even though it could defeat the scheme. These shares can be recalled on three days’ notice,” Ownership Matters said.

“JPMorgan’s substantial shareholder notice reveals that the vast majority (60 per cent) of the shares it holds are through the securities lending pool, with an obligation to return the shares,” its analyst, Simon Connal, wrote in a separate report.

Institutional Shareholder Services, another proxy adviser, also told The Australian the share arrangement was an issue for the market to grapple with.

“It’s all about maximising the yield for an institutional shareholder and that’s why they lend it out. But are they giving that voting right away too early,” ISS’s Vas Kolesnikoff said.

“That’s definitely an issue in the market ... when you’ve got a demerger which has shareholder value implications.”

The Atlassian co-founder dismissed the concern. “It’s very common for large investors to use sophisticated strategies to acquire stakes. We’ve been transparent in our filings. We’ve put the documents on the ASX. We have also been consistent that we will vote every share we control at the time of the scheme meeting against the demerger,” a Grok spokesman said.

AGL chairman Peter Botten and Mr Hunt held a meeting on Monday evening with Mr Cannon-Brookes and Jeremy Kwong-Law, the chief executive of Grok.

The two sides have traded barbs all week, with AGL arguing Mr Cannon-Brookes had no future plan for the company and the tech executive accusing AGL of having no Plan B if he is successful in derailing the company restructure.

AGL said it asked Mr Cannon-Brookes to detail a strategy for the company. “Mr Cannon-Brookes was invited to share his plans beyond simply blocking the demerger. He declined but the offer remains open,” an AGL spokesman said.

The power giant plans to split off AGL Australia, with its 4.5 million customer base, into a newly listed retail-focused company, with the current AGL to be rebadged as a coal-dominated generator called Accel Energy.

It was the first meeting between the two since Mr Cannon-Brookes grabbed a 11.3 per cent stake in AGL on May 2 in a bid to vote down the planned ­demerger.

Coal has been another point of tension between AGL and its biggest shareholder, who wants the fossil fuel stripped from its portfolio much earlier than ­planned closure dates. AGL again suggested it was open to faster shutdown dates.

JPMorgan also waded in on Tuesday and said Mr Cannon-Brookes may make a fresh takeover tilt for AGL, while demerger uncertainty would lower the company’s share price and justified a downgrade.

“We fail to understand Grok’s strategy that preventing the demerger will facilitate early closure of coal plants,” JPMorgan analyst Mark Busuttil wrote in a note to clients.

JPMorgan downgraded AGL to neutral from overweight with a $8.70 price target. Its shares fell 1.1 per cent to $8.20.

AGL Energy chief executive Graeme Hunt said its largest investor, Mike Cannon-Brookes, may be plotting a third takeover attempt for the power giant with the company saying shareholders were confused over the billionaire’s intentions.

The tech mogul and AGL are divided over a planned demerger with analysts speculating Mr Cannon-Brookes‘ Grok Ventures could pounce on either the entire company – should he foil the split – or its coal arm Accel Energy if the division of its retail and generation assets goes through.

Mr Hunt said shareholders were unsure of his intentions.

“They just don‘t quite understand what the end game there is unless he is trying to do something to reduce the value of the company in order to pursue what might have been his first strategy when he had a partner to take control of the company on the cheap and to put the value of the energy transition in his pocket, not in that of our broader shareholder base,” Mr Hunt said.

Mr Cannon-Brookes, one of the country’s richest businessmen, intervened a week ago to stop an attempt by AGL to hive off its coal-fired stations less than two months after the power giant rejected two takeover offers with his co-bidder, Brookfield.

AGL said its biggest shareholder declined to share his plans for the company beyond blocking a planned demerger during a meeting between the pair, an ongoing point of tension between the warring sides as they jockey to win over shareholders.

Adding to tensions, Mr Cannon-Brookes’ AGL stake has been called into question by two influential proxy advisers who have raised concern over the billionaire’s voting rights.

The tech billionaire built his 11.3 per cent holding in AGL through a series of swaps and derivatives via JP Morgan but issues have been raised given partially borrowed stock can be recalled with three days notice.

With the shares representing a potential blocking stake to AGL‘s demerger, Ownership Matters said it represented an act of “sorcery”. The influential advisor, in a post on Twitter, said AGL’s financier JP Morgan had recieved 40m through loan agreements.

”Any lender is also transferring their rights to vote for a pitiful fee ... even though it could defeat the scheme. These shares can be recalled on 3 days notice,” Ownership Matters said.

“JP Morgan’s substantial shareholder notice reveals that the vast majority (60%) of the shares it holds are through the securities lending pool, with an obligation to return the shares,” its analyst, Simon Connal, wrote in a separate report.

Institutional Shareholder Services, another proxy advisor, also told The Australian the share arrangement was an issue for the market to grapple with.

“It‘s all about maximising the yield for an institutional shareholder and that’s why they lend it out. But are they giving that voting right away too early,” ISS’s Vas Kolesnikoff said.

“That‘s definitely an issue in the market...when you’ve got a demerger which has shareholder value implications.”

The Atlassian co-founder dismissed the concern. “It’s very common for large investors to use sophisticated strategies to acquire stakes. We’ve been transparent in our filings, we’ve put the documents on the ASX. We have also been consistent that we will vote every share we control at the time of the scheme meeting against the demerger,” a Grok spokesman said.

The power operator’s chairman, Peter Botten, and Mr Hunt held a meeting on Monday evening with Mr Cannon-Brookes and Jeremy Kwong-Law, the chief executive of Grok.

The two sides have traded barbs all week with AGL arguing Mr Cannon-Brookes had no future plan for the company and the tech executive accusing AGL of having no Plan B if he is successful in derailing the company restructure.

AGL pointedly said it again raised the issue with its chief protagonist, asking for him to detail a strategy for the company. “Mr Cannon-Brooks was invited to share his plans beyond simply blocking the demerger. He declined but the offer remains open,” an AGL spokesman said.

The power giant plans to split off AGL Australia, with its 4.5 million customer base, into a newly listed retail-focused company with the current AGL to be rebadged as a coal-dominated generator called Accel Energy.

“I‘ve presented a lot of opportunities I think the company is not leaning into yet. So there’s clearly a huge move towards electrification. There’s a huge amount of opportunities in decarbonisation for this company that they tacitly talk to you, but don’t plan and practically engage in and drive towards.”

It was the first meeting between the two since the tech titan grabbed a 11.3 per cent stake in AGL on May 2 in a bid to vote down the planned demerger.

Coal has been another point of tension between AGL and its biggest shareholder who wants the fossil fuel stripped from its portfolio much earlier than planned closure dates. AGL again suggested it was open to faster shutdown dates.

JPMorgan also waded in on Tuesday and said Mr Cannon-Brookes may reprise a fresh takeover tilt for AGL while uncertainty over the demerger will lower the company’s share price and justified a downgrade.

“We fail to understand Grok’s strategy that preventing the demerger will facilitate early closure of coal plants. Alternatively, Grok could itself acquire Accel Energy post demerger to push forward with asset closures,” JPMorgan analyst Mark Busuttil wrote in a note to clients.

JPMorgan thinks the demerger of AGL is now in the best interests of existing shareholders with Accel as a stand-alone entity generating substantial cash flow, and the retailer AGL Australia luring corporate interest.

“In the past, investor concerns focused primarily on the ability to debt finance Accel Energy and the impact of low wholesale prices on profitability. Both issues have been addressed,” Mr Busuttil said.

However, its share price faces pressure from Grok‘s plan to kill the demerger with the outcome potentially hinging on how AGL’s big retail investor base votes. “With Grok announcing it will vote against, we believe the likelihood of the demerger proceeding depends on retail participation and passive investors who could be swayed by Grok’s assertions around ESG.”

The demerger needs approval from 75 per cent of shares voted to proceed.

JPMorgan downgraded AGL to neutral from overweight with a $8.70 price target. Its shares fell 1.1 per cent to $8.20.