Cannon-Brookes, Hunt duel over AGL Energy’s future

Mike Cannon-Brookes says he will run a no-holds barred campaign to block AGL’s demerger but the power giant says the billionaire has no plan beyond sabotaging the move.

Mike Cannon-Brookes is an Australian billionaire, the co-founder and co-CEO of the software company Atlassian.

It may not be a takeover battle – yet – but the high stakes future for AGL is back in play.

On Monday evening billionaire investor Mike Cannon-Brookes swooped onto the register on through his company Grok Ventures and is now the largest investor at 11.26 per cent.

Stopping the demerger of AGL in mid-June is the mission he has set himself. He needs 25 per cent of the votes of shareholders who decide to vote. And if he feel strongly enough about it, the billionaire could well raise his stake to 19.9 per cent.

On Tuesday, AGL chairman Graeme Hunt fired back. The board was up for the fight and determined to go through with the demerger to create a retail and renewables business – AGL Australia – and the separate Accel Energy to hold the coal fired generation.

To add punch Hunt announced a new $2bn deal with Global Infrastructure Partners to help fund Accel’s transition, subject to the demerger.

“We announced the Energy Transition Investment Partnership which is a proof point of one of the things that Cannon Brookes contests: that Accel can fund the build out of its renewables pipeline. Our shareholders have got to make a choice between a plan and no plan,” he said.

The GIP tie up had clearly been in the planning but the announcement looks hastily written and brought forward after the surprise attack.

The Grok camp orchestrated blanket media coverage around Tuesday’s share raid and promises a full throttled campaign targeting proxies, institutions, mums and dad shareholders and employees using a new website and Cannon-Brooke’s prolific use of Twitter.

The Grok raid is actually Plan B for Mike Cannon-Brookes after an unsuccessful tilt at AGL with Canadian giant Brookfield was aborted in March. This time he is on his own, at least for now. Brookfield is no activist.

“Put that pen down. This is a very different thing,” he tells The Australian. “This is to focus on preventing the demerger from going ahead, which I think is very bad for any and all concerned.”

AGL has jumped on Cannon-Brooke’s comments accusing him of having no plan for AGL beyond sabotaging the demerger.

“Obviously he has acquired the voting rights – he says he has,” says Graeme Hunt. “He said he wants the demerger not to go ahead but then he’ll sort out what direction the company needs to go in later.”

Tech billionaire Mike Cannon-Brookes is the co-founder of software company Atlassian.

“That’s not aligned with the interest of thousands of other shareholders playing the game by the rules, waiting for the scheme booklet, including the independent expert report on which to make a decision to vote” he says.

But Cannon-Brookes says the recent outage at AGL’s Loy Yang A power station demonstrates precisely why the split makes no sense and destroys value.

“You can see from the profit downgrade on Monday and two of the four units of Loy Yang A out that the reliability of coal is causing huge financial pressures. These are assets that were invented before personal computers,” says Cannon-Brookes.

“Spinning (Accel) out into its own company is going to be a huge challenge. It creates a stranded asset that will probably have to get paid for by the government and or the shareholders. So now as the largest shareholder I’m putting my money where my mouth is.”

Cannon-Brookes says he is shelling out $654m for the stake, Grok’s largest buy-in investment ever. But AGL accuses its new shareholder of engineering out all lot of the downside from his investment through a complex loan and equity collar transaction agreed with JP Morgan.

“From what we can pick apart, he has limited economic exposure to this transaction for the type of share that he is taking up,” said chief financial officer Damien Nicks.

So he hasn’t spent $650m? “We don’t believe so,” said Nicks.

Whatever the figure, Cannon-Brookes has certainly put money down. He says, in sharp contrast, AGL directors shows no confidence in the company’s future by holding only 0.02 per cent of the shares. An exasperated Hunt says the board is in line with ASX 100 shareholder policy.

There are the arguments that will run hot in a six week campaign for the retail vote through social media and proxy call centres.

If he fails Australia’s top activist investor says he is quite willing to risk that he will end up with a large stake in Accel that he believes would be a stranded asset.

“People have said plenty of things they spout out and don’t get committed. This is pretty bloody committed. There is a difference between pigs and chickens. We are making it very clear as the single largest shareholder at this point with our opinion on the only plan that the board and management team have put forward,” he says.

AGL has turned down Cannon-Brookes offer of a constructive talks. “I’d be awfully surprised if they wouldn’t respond to their largest shareholders? That would seem churlish,” says Cannon-Brookes.

But he can expect no special treatment before the scheme booklet is released to shareholders over the coming days and perhaps not even then. “He will be on the list with a whole lot of others big to small who we will engage with around the process leading up to the shareholder vote,” says Hunt.

The Liddell power station in Muswellbrook, in the NSW Hunter Valley region.

Cannon-Brookes insists that Brookfield is not involved in the process at this stage it is understood that there have been no real discussions since pens were put down in March.

He will be talking keenly to other key shareholders like VanEck which has questioned the merits of the split.

If the demerger is voted down there are big consequences. AGL is already moving to a two company mindset. Offices are on the move, appointments made, strategies are being developed. Board and management positions are at stake.

“I would imagine the board and management team would be under some significant pressure and duress at that point, as they entirely should be,” says Cannon-Brookes. “Don’t forget this is largely the board and management team that’s presided over a 70 per cent decrease in value in five years. They are putting up this as their solution to the problem so you shareholders can choose whether you trust that opinion, or don’t trust that opinion based on their results. The results speak for themselves.”

AGL CEO Graeme Hunt. Picture: Aaron Francis/The Australian

Cannon-Brookes does not reconfirm his February commitment to shut AGL’s coal fired power stations by 2030. “Can we do it faster than 2045? Yes, significantly faster,” he says.

Hunt argues without measured transition Cannon-Brookes could sent the company and the transition into a nose dive that would be bad for shareholders and consumers.

Just ahead of the federal election, Energy Minister Angus Taylor announced plans to require all coal generators to give five years notice before closure.

“I would suggest he’s going to get an awful lot of notices very quickly, which may not be the answer that he’s looking for. There’s a lot of very interesting things around that forcing procedure,” says Cannon-Brookes. “The longer you put in a notice period more notices you’re going to get because the economic viability after that point could result in massive amount of cash flow loss.”

If there is a bigger game strategy between Brookfield and Grok, Cannon-Brookes is giving nothing away. But his planned one-two punch of a blocking stake and big retail campaign could be enough to upset the AGL board particularly if he is prepared to take a bigger stake to get what he wants.