Cannon-Brookes rejects AGL Energy demerger plan
AGL’s demerger plan fails to meet climate goals expected by its shareholders, Mike Cannon-Brookes said.
Mike Cannon-Brookes said AGL Energy’s investors would reject its plan for a demerger given widespread climate concerns among its share register and its failure to execute a strong business case for the split.
The billionaire was due to hold talks with AGL chairman Peter Botten on Monday evening, the first talks between the pair since he took his 11.3 per cent stake to become the company’s largest investor.
Mr Cannon-Brookes said he read the 182,000 words contained within the AGL scheme booklet and said he was incredulous at the company’s failure to consider a Plan B if the split is rejected and its failure to meet Paris climate targets. An independent expert’s report concluded the company restructure would be in the best interests of shareholders.
“The amount of time and energy the booklet put into the counterfactual of the demerger not proceeding was basically nil. And that was quite surprising to me. The other problem was all of the climate disclosures which fail to meet the Paris agreement,” the Atlassian co-founder told The Australian.
The Paris climate agreement aims to keep temperatures below two degrees above pre-industrial levels with an aim of limiting rises to 1.5C.
AGL was hit with a huge backlash on climate change at its 2021 annual general meeting after more than half of investors demanded steeper carbon cuts in a result hailed by Mr Cannon-Brookes at the time as a defining moment for Australia’s climate ambitions.
“It surprised me they didn’t spend more time on trying to explain any plans for being Paris compliant when 53 per cent of the votes were cast against the board’s recommendation,” he said on Monday.
Both Mr Cannon-Brookes’ Grok Ventures camp and AGL’s board and executives are holding meetings with major investors this week at the beginning of the five-week race to win support.Grok said it wanted to inform shareholders of the risks of the restructure. “Most of them have been incredibly thankful so far to us for putting forward a counterfactual for explaining things. There’s been a clear appreciation for having more information in a broader sense. People will now form their choices, as they should. But I’ve certainly spoken to some who are absolutely against it.”
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.
The demerger needs approval from 75 per cent of shares voted in order to proceed.
The explanation for AGL Energy’s demerger was underwhelming and the company had now left itself more exposed to activists vowing to shut down the split, Barrenjoey analysts said.
The broker said it found the scheme booklet and expert’s arguments underwhelming given a lack of quantifiable shareholder benefits, an absence of forecasts and critical information and several dissynergies.
It also raised concern that given the complexity of AGL’s business and uncertainties that exist across the industry, the expert provided no earnings forecasts. The broker said detail was required on electricity transfer pricing, ETIP funding conditions, credit metrics and capex outlook so shareholders can determine which scenario would see AGL best positioned to navigate energy transition and create shareholder wealth.
“We still see the narrative for the demerger as relatively underwhelming, and the prolonged time frame for the demerger has now left it exposed to activism (recent acquisition of 11 per cent interest by Grok Ventures),” Barrenjoey analyst Dale Koenders said.
Half of AGL’s shares are owned by retail shareholders but Barrenjoey said they were less likely to vote: “We expect the high retail shareholding, which typically is less likely to vote, also increases the risk of the demerger being voted down. In such a case, we see potential for disruption to board and management, and a need to reset corporate strategy; all presenting substantial risk to share price performance.”
Broker Morgans maintained its add rating on AGL, saying soaring wholesale power prices would lift earnings for the legacy coal generation assets.
“Soaring futures prices in NSW and upwards pressure on Victorian wholesale prices should lift the earnings derived from the legacy assets significantly in the next 12-18 months regardless of which entity they sit in,” Morgans analyst Max Vickerson said.
Mr Cannon-Brookes 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.
AGL fell 0.7 per cent to $8.29.
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