No regrets on Cannon-Brookes war, says AGL Energy chair

A five-week countdown has started on the high stakes demerger vote, as AGL’s chair says he has no plans to prioritise discussion with its biggest shareholder.

AGL Energy’s coal plants will be hived off into Accel Energy as part of a demerger under fire by its largest shareholder, billionaire Mike Cannon-Brookes. Picture: Dan Himbrechts/ AAP Image

A battle between one of Australia’s oldest companies and one of the nation’s youngest billionaires has escalated with AGL Energy saying it had no regrets about its strained ties with Mike Cannon-Brookes, its largest investor, as a five-week countdown starts on a high stakes demerger vote.

AGL chairman Peter Botten, speaking for the first time since the billionaire emerged with a potential demerger blocking stake on Monday, defended its limited talks with Mr Cannon-Brookes during two rejected takeover bids and said it had no plans to prioritise discussions with its biggest shareholder now.

The two sides have traded barbs all week with AGL arguing Mr Cannon-Brookes had no future plan for the company and the tech titan accusing AGL of having no Plan B if the company restructure falls over.

“We engage with all our shareholders and Cannon-Brookes is now a shareholder and we will engage appropriately,” Mr Botten said after AGL released demerger documents on Friday. ”I have absolutely no regrets at all in the way the board managed the takeover offers.”

AGL released its scheme booklet on Friday detailing the benefits of its demerger, with an independent expert’s report concluding the company split is in the best interests of shareholders.

The expert, Grant Samuel, pointed to a string of “non-trivial” disadvantages, costs and risk from the demerger but said investors on balance would be better off by dividing the company’s retail and generation assets into two separately listed businesses.

“Mike is obviously good at media and good at promotion but our scheme document goes to detail,” Mr Botten said. “And it goes to a plan and series of plans that were evaluated to get to that point. We will engage with as many shareholders as we can over the next five weeks and they can make an informed view and hopefully vote in favour of the demerger.”

Mr Cannon-Brookes returned fire saying the risks and disadvantages section of the scheme booklet was as long as and far outweighed the benefits of the deal. “The booklet does nothing to change our view that the demerger plan promotes a terrible outcome for shareholders, communities and the climate,” a spokesman for Grok Ventures, Mr Cannon-Brookes‘ family investment group 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.

With AGL‘s 148,000 small shareholders accounting for half its investor base, the company said winning over the retail base was important to getting a deal over the line at the June 15 scheme meeting. “We have a long and loyal shareholder base with over 148,000 retail shareholders and it is important that we do engage very strongly with them as well,” AGL chief financial officer Damien Nicks said.

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

Grant Samuel said the traditional generator-retailer set-up, known as the gentailer model, was no longer fit for purpose while AGL’s cost of capital with both equity and debt would be adversely hit by its ownership of coal-fired power stations.

“In Grant Samuel’s view, there is a clear case that the status quo is suboptimal and that change is required,” the document reads. It considered whether in the absence of a fully priced takeover offer, the market issues are best solved by early closure, a trade sale or IPO or a spin off of the company.

However, it said accelerating coal closure dates would be value destructive to shareholders while sales processes are inevitably risky and out of control of the seller. “Ultimately, the board settled on the demerger as the preferred way forward (in the absence of a fully priced takeover offer from a third party). The demerger offers much higher transactional certainty (than a sale process), brings a number of benefits to the businesses and preserves the flexibility to change course as market circumstances evolve,” the report says.

AGL released the booklet after navigating a court challenge which wanted extra risks of the restructure highlighted to shareholders. Shareholder Joshua Ross had raised concern in the NSW Supreme Court over whether sufficient coal and climate risks are detailed in AGL’s scheme documents.

Mr Ross only won a small concession with AGL instructed to include a text overlay on three explanatory videos for shareholders about the demerger, referring to further details being available in the booklet including possible disadvantages of the scheme.

Mr Ross told The Australian he would vote against the split and expects strong opposition to the demerger from shareholders.

“A lot of the groups I am speaking to and a lot of the institutions I’m speaking to will be voting no,” he said.

AGL also on Friday sought to play down comments made by its largest customer pushing for a faster exit from coal as part of a court challenge over its planned demerger.

Mr Ross submitted to the court a story published by The Australian on Wednesday which said AGL‘s biggest customer, Tomago Aluminium, had pledged to switch its reliance on coal to clean energy by the end of the decade.

Mr Ross argued the risks raised by Tomago should be included in the scheme booklet as it indicated big, industrial clients may not be long-term customers of AGL‘s coal offshoot, Accel Energy.

But lawyers acting for AGL said contract talks six years away should not be included.

“The company has a binding contract with the Tomago smelter until 2028, ” lawyers acting for AGL said in court.

“It’s not a matter for this scheme booklet to start entering into detail of the company’s confidential thinking about what it might be negotiating in six years time.”

Tomago Aluminium, NSW’s biggest power user and the nation’s largest smelter, has a giant contract with AGL that runs until December 2028 and is based solely on coal supply from AGL’s Liddell and Bayswater power plants.

But Tomago said it was open to replacing all of AGL’s coal generation with firmed or backed-up renewable supply by 2029 or earlier, matching a timeline set by the billionaire for AGL to accelerate the closure of its power plants and move to greener generation.

AGL fell 0.8 per cent or 7c to $8.35.