AGL Energy investor critical of takeover bid rejection
AGL Energy erred in its swift rejection of a higher takeover bid by Mike Cannon-Brookes and Brookfield, London-based activist investor Snowcap says.
AGL Energy erred in its swift rejection of a higher takeover bid by Mike Cannon-Brookes and Brookfield and missed an opportunity to open talks with its suitors, London-based activist investor Snowcap said.
The electricity generator and retailer rejected a second bid from the Sydney billionaire and his investment partner, Brookfield, arguing a plan to split the company in two would generate more value for shareholders than the increased bid of $8.25 a share, 10 per cent higher than the original tilt.
Several major shareholders on Monday said AGL may have been too hasty in its approach given uncertainties around the company’s own demerger scheme, and exploratory talks with the high profile suitors may have been a better path for the 180-year old electricity operator.
Snowcap, which had already written to the company’s board calling for the demerger to be scrapped and coal retirements fast-tracked, said the power giant should have engaged with the investment duo even if it did not represent a knock-out price.
“We are concerned that the board has not shown a willingness to at least engage with the consortium’s latest offer. You have to question whether they are acting in shareholders’ best interests at this point,” Snowcap said in a statement to The Australian.
“AGL‘s board have rejected the offer based on a perception of AGL’s value that we ultimately agree with. But management has substantially failed to realise this value to date, and the demerger risks destroying more of it. We remain convinced that the only way to unlock AGL’s potential value is to abandon the demerger and accelerate coal closure.”
The British investor has previously said it agreed with AGL’s decision to rebuff the initial $7.50 a share bid lodged just over two weeks ago and wants the company to stay as a listed entity for transparency and accountability reasons.
Top 10 shareholder VanEck also said on Monday the company should have engaged and considered some form of due diligence once the improved $8.25 a share buyout tilt was tabled after also last week backing AGL for rejecting the initial offer.
While Mr Cannon-Brookes took to Twitter to declare it was “pens down” on the takeover bid, sources close to the billionaire said the consortium may still re-emerge with another bid given uncertainty among shareholders over the demerger plan. It also remains in talks with several of the company’s investors.
AGL is pushing ahead with its proposed demerger but with further details on the split not due until May – ahead of a shareholder vote in June – shareholders said the company needs to keep its options open and talks could have resulted in a higher offer yet again.
Chief executive Graeme Hunt has previously said the consortium would need to boost its takeover bid by at least $1bn to be taken seriously and has also slammed its early coal retirement plan as unfeasible.
A bid north of $9 a share was probably needed to get the board closer, JP Morgan said.
“We would expect an offer of $9-$10/share would be required to entice management to engage: Notwithstanding the consortium’s intention to curtail coal-plants early, we believe AGL management will be encouraged by increased electricity prices and the impact that could have on cash flow generation and value,” JP Morgan analyst Mark Busuttil said.
“Furthermore, we believe AGL understands the likely corporate appeal in retail post demerger. Therefore, an offer price ahead of the demerger would have to be compelling to change the company’s current course of action.”
Shareholders are set to vote on a plan to split it into two companies: a green retailer named AGL Australia seeking to be fully carbon-neutral by 2040, and a coal-dominated generator, Accel Energy, targeting net-zero emissions by 2047.
AGL appeared to be unimpressed by several features of the second bid noting it included a requirement that it effectively commit now to recommend the higher offer while the Brookfield consortium also issued a draft confidentiality access deed which covered exclusivity and cost reimbursement obligations for AGL.
Brookfield was funding 80 per cent of the overall bid with Mr Cannon-Brookes the balance.
The scheme to quit coal within just eight years and plough billions into replacement renewable energy and storage generation was lauded by green energy developers and climate-conscious investors, but the billionaire had yet to detail the feasibility of the plan and what it would mean for household bills.
AGL fell 0.3 per cent to $7.28.