Cannon-Brookes bombshell derails AGL Energy demerger

Mike Cannon-Brookes, one of the country’s richest businessmen, has dramatically intervened to stop an attempt by AGL Energy to hive off its coal-fired power stations.

Billionaire Mike Cannon-Brookes became AGL’s largest shareholder after acquiring an 11.28 per cent stake on Monday. Picture: Toby Zerna

Billionaire Mike Cannon-Brookes said he expects AGL Energy‘s demerger to be voted down, in a move which would force the entire board of the power giant to quit.

Mr Cannon-Brookes has amassed a 11.28 per cent stake in AGL and said the position of the board, led by chairman Peter Botten, would be untenable.

“It would be hard for them to stay in place,” Mr Cannon-Brookes told The Australian on Tuesday.

“It‘s a board and a management team which has presided over a 70 per cent loss of shareholder funds in five years. It’s a board that said they didn’t see renewables coming at this pace. Really? You’re the largest energy retailer in the company and you didn’t see renewables coming. What sort of answer is that.”

The tech titan said he knows of many major shareholders who share his frustration with the proposed demerger, which he expects will be defeated at a June 15 investor vote. Instead of the demerger, he wants to keep the company intact and fast-track a process for it to become a green clean energy operator.

“I think they will [vote it down]. From the shareholders I‘ve talked to, AGL is facing a giant uphill battle to convince people that this is a good idea. I suspect we’ve made that battle a little bit harder in what was already probably going to be an uphill battle.”

Mr Cannon-Brookes, who used his family investment group Grok Ventures to buy the stake, said he intends to remain a long-term shareholder of the company but said his immediate focus was on securing enough shareholder support to defeat the split of the company.

The demerger needs approval from 75 per cent of shares voted at the June 15 meeting to proceed.

“We need 75 per cent approval. So we can‘t do this alone. But there are certainly other shareholders out there who we know are on our side and previously had no other option. So as of yesterday, there was no nothing else for them to vote for or or no reason to vote against. And this is us intending to be involved here for a very long time. This is not just we will be here for the vote and that’s it.”

The power operator 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.

The Morrison government were critics of a takeover plan by Mr Cannon-Brookes and his consortium partner Brookfield to close AGL‘s coal stations much earlier by as soon as 2030.

However, Mr Cannon-Brookes said he would continue to press for rapid withdrawal of AGL‘s coal generation to fulfill a dream of fast-tracking the company into a green, renewable electricity operator.

“I believe the faster that transition happens, the more benefit there is for shareholders, and the cheaper prices there are for consumers.”

Asked whether he was concerned about political opposition to the early exit of AGL‘s coal generators who provide major capacity for the power grid, Mr Cannon-Brookes said:

I don‘t think I’m butting heads with the government. They’ve been very clear. They want the lowest prices for consumers straightaway. They’ve been very clear. They want can-do capitalism to come solve the problem. That’s exactly what I’m freaking doing. They’ve been very clear that they want industrialists and financiers and entrepreneurs and technologists to come and solve this problem. It’s exactly what we’re doing. And they’ve been very clear that they want that supply to be replaced with stable, clean cheap energy. I’m entirely aligned with that. Right. Everything that’s put on the ground they say they want to do is exactly what I’m doing. So I see us as being entirely aligned.“

Mr Cannon-Brookes, one of the country’s richest businessmen, dramatically intervened on Monday to stop an attempt by AGL to hive off its coal-fired power stations less than two months after the power giant rejected takeover bids from the billionaire and his then co-bidder, Brookfield.

He immediately pledged to halt a looming split of the 180-year-old power company – just hours after AGL dispatched letters to shareholders calling for them to support the demerger that will divide the company into two ASX-listed retail and generation businesses.

The Atlassian co-founder’s family investment vehicle, Grok, has circulated its own missive, saying the split will fail to limit climate change and end up pushing power prices higher.

“Keeping the company together would create more value for shareholders, cheaper energy and an acceleration of net-zero emissions goals,” the letter said.

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

“We firmly believe the proposed demerger is a flawed plan that will fail to achieve these goals,” Mr Cannon-Brookes said in the letter delivered to AGL’s board.

“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.

“The proposed demerger risks a terrible outcome for AGL shareholders, AGL customers, Australian taxpayers and Australia for three key reasons: we believe the demerger will destroy shareholder value, we believe Accel Energy will not be a viable, stand-alone public company, we believe the demerger is globally irresponsible.”

The sensational move was made hours after AGL slashed its profit forecasts following the breakdown of a major coal unit at its Loy Yang A plant in Victoria.

The demerger needs approval from 75 per cent of shares voted at the June 15 meeting to get over the line. AGL stepped up its pitch on Monday, sending letters to shareholders ahead of the publication of the demerger scheme booklet by mid-May. AGL fell 0.7 per cent to $8.62 but remains well above the last $8.25 offer from Mr Cannon-Brookes and Canadian investor Brookfield.

AGL said on Monday it stood by plans for the demerger, which it expects will be complete by June 30. “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,” a spokesman said.

Mr Cannon-Brookes and Brookfield walked away after their $7.50- and $8.25-a-share tilts were rejected, although the dramatic move was partly seen as a ploy to put pressure back on AGL ahead of its shareholder vote.

Mr Cannon-Brookes paid between $8.46 and $8.62 a share through derivatives via JP Morgan to acquire his stake.

His letter stated AGL Australia and Accel would be weaker and more costly to run. “When we compare their individual valuations to their respective listed peers, we expect that the aggregate value of these two entities will be worth less than where AGL trades today,” it said. Accel would be “at significant risk” of becoming a stranded asset given its coal exposure, the letter said, while exposure to the fossil fuel for several more decades was inconsistent with AGL Australia’s bid to be a leader in sustainability.

“We believe that as a whole AGL will be a more resilient company, able to transition more quickly and better compete in a rapidly changing energy environment due to the benefits of scale and vertical integration,” it said. “We need to keep AGL together.”

Brookfield, which was part of a buyout bid with Mr Cannon-Brookes in February, was not part of Grok’s move on Monday.

Top 10 shareholder VanEck said it was yet to be sold on the split. “I’m not overly happy with the demerger. But I’ll wait on the detail,” said VanEck Australia’s deputy head of investments and capital markets, Jamie Hannah.

Scott Morrison and Energy Minister Angus Taylor have warned about a spike in electricity prices if the country’s coal power plants – including AGL’s major Bayswater and Loy Yang plants – shut earlier than expected.