Mike Cannon-Brookes has narrowed his focus in the battle for AGL, taking a calculated move that by forcing the electricity giant to abandon its looming split this will buy him enough time to bring about an early exit from coal.
As AGL issued a profit warning this week, Cannon-Brookes launched a share raid to thwart a demerger vote planned for the end of June that would see the heavy-polluting coal-fired power plants split from its renewables and electricity retailing.
“I don’t think the demerger makes any sense, logically or economically in any which way you want to spell it. It creates two smaller, weaker companies...these assets are going to have to transition much more rapidly than the company anticipated,” Cannon-Brookes said on Tuesday.
The billionaire has used a complex financial instrument known as a “loan and equity collar transaction” to secure the 11.3 per cent stake. The move, handled by his investment bank JPMorgan, involves borrowing shares from big investors ahead of the demerger vote. Some of the shares will be returned after the vote, but Cannon Brookes intends to hold a stake over time as an activist investor.
The holding in itself is not enough to block the demerger, however Cannon-Brookes can use it as a campaign to drum up support to get the 25 per cent needed to derail the vote. The stake is just enough to prevent a full takeover, if another private equity fund or rival bidder wants to make a move on AGL.
The bigger play for the tech billionaire is that a collapse of the demerger vote could trigger several courses of action. This includes either instability or resignations at the AGL board level, it could force the company to revisit its timetable to exit coal, or critically it could lead it back to the negotiating table with Cannon-Brookes and private equity partner Brookfield.
Fresh from a TV profile on Sunday about efforts to turn renewables into a green gold mine, Cannon-Brookes is on a mission to save AGL from itself.
He says AGL should be regarded as having a “positive future” but the assets need to remain together to achive that.
“This is a company that used to believe in the future and in innovation, and in creating that future for Australians. There’s a lot of really exciting things happening in the energy industry in this transition,” he says.
“It should be an incredibly positive story for the shareholders to participate in that. It has not been over the last five years, I understand why people are tired and beleaguered and just given up. Well, that’s not that’s not how I roll...I wouldn’t be here if I wasn’t bullish about the opportunities in front of the company”.
His disruption play comes in the middle of a highly charged federal election campaign where cost of living and rising electricity prices remain front and centre. Electricity stability is again under focus with a fault at AGL’s giant Loy Yang A coal power station in Victoria likely to be operating at sharply reduced capacity until the start of August.
It was AGL’s plan to carve itself into two – hiving off its coal and gas power-generating assets from its greener retailing and renewables business – which initially drew Cannon-Brookes and his Canadian partner out of the shadows with a takeover bid launched in February.
While the more low-profile Brookfield withdrew from the partnership when AGL refused to enter into talks over the $5bn bid, Cannon Brookes refused to walk away quietly. However rising electricity prices here and globally means AGL is getting more expensive as a takeover option and potentially out of reach – even for a tech billionaire.
The Atlassian co-founder has always argued he can use market forces to put AGL back on a path of cleaner, greener energy, in as little as 10 years. And he has previously expressed fears the coal-fired energy spin-off which will house AGL’s Bayswater plant in NSW and Victoria’s giant but troubled Loy Yang will be “stranded assets” over coming decades. and simply won’t have the financial firepower to make the transition to cleaner energy.
AGL late Monday said it planned to push ahead with the demerger vote, with the scheme booklet to be released imminently. The vote remains on track for next month, the energy company said. AGL shares ended down 3.1 per cent at $8.35 on Tuesday.
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