AGL Energy under fire over demerger case as Mike Cannon-Brookes camp meets with shareholders
Mike Cannon-Brookes’ Grok Ventures is expected to tell institutional shareholders their dividends will be hit by a demerger.
AGL Energy and Mike Cannon-Brookes will court the company’s major shareholders on Monday as they battle to respectively sell and scupper a controversial demerger deal, with the billionaire to warn of a major dividend hit if the company split proceeds.
A five-week countdown has started on a high stakes demerger vote after Mr Cannon-Brookes emerged as AGL’s largest shareholder, vowing to block the company’s division of its retail and power generation assets into two separately listed businesses called AGL Australia and Accel Energy.
Both sides have lined up meetings starting on Monday with AGL’s major investors after the demerger scheme booklet was released on Friday, with an independent expert’s report concluding the company split is in the best interests of shareholders.
The tech titan’s Grok Ventures is expected to argue in meetings with institutional shareholders that dividends will be severely impacted given its view Accel will face financial constraints while also saying the board’s value assumptions are severely misguided.
The expert, Grant Samuel, pointed to shareholders facing lower aggregate dividends than under the status quo due to Accel’s debt amortisation profile even as it concluded the split ultimately stacked up. Grok is expected to also point to the risks for Accel from ongoing coal outages and major offtake contracts expiring in 2028.
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.
AGL will reap a higher profit boost, the equivalent of a 1 times earnings multiple improvement, due to its improved green credentials, the expert said, offsetting the costs to shareholders of the demerger. However, Grok will argue the green premium is unlikely to emerge while the retail-focused company will be saddled with much higher leverage than the market was expecting.
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 assets into two businesses rather than sticking with the traditional “gentailer” model.
But Grok will press home with investors a string of issues raised by the scheme booklet. It’s expected to say that AGL has failed to devise a bigger strategy for how to grab greater value for both shareholders and workers given its view fast-tracking the exit of coal will open up a bigger economic opportunity as a green energy company.
Asked whether he had considered meeting with Mr Cannon-Brookes last week to find some middle ground between the company and its largest investor, AGL chairman Peter Botten said he was resigned to the billionaire’s opposition to the demerger.
“We’re very much up for the challenge and process of explaining the scheme document and the direction endorsed by the board to our shareholders. But I don’t believe we will change Mike’s mind as to his direction,” Mr Botten told The Australian on Friday.
With the clock ticking ahead of the June 15 demerger vote, both sides now have the opportunity to woo shareholders. About half of AGL’s shareholders are individual retail investors, who some analysts think would be more likely to side with the company’s recommendation to vote for the company split.
While Mr Cannon-Brookes took out full-page newspaper advertisements over the weekend to promote his Keep It Together Australian website campaign, AGL insisted it will not change its approach or strategy in response.
“Fundamentally it will be exactly the same,” Mr Botten said. “We believe we need to get appropriate airtime with all of our shareholders with Mr Cannon-Brookes now being one of them. But I don’t think it fundamentally impacts how we are going to engage or what we are going to say.”
The demerger needs approval from 75 per cent of shares voted to proceed.
The two sides traded barbs over the last 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.
Mr Cannon-Brookes, one of the country’s richest businessmen, dramatically intervened a week ago 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 power company – just hours after AGL dispatched letters to shareholders calling for them to support the demerger.
Grok said the split will fail to limit climate change and may end up pushing power prices higher.
More Coverage
