Coal-arm future in doubt if AGL Energy splits: Mike Cannon-Brookes

Mike Cannon-Brookes has written to small AGL Energy investors, urging them to turn out and vote against splitting the company in half.

Mike Cannon-Brookes has written to AGL shareholders urging them to vote against splitting up the company.

Atlassian billionaire Mike Cannon-Brookes has urged AGL shareholders to vote against the demerger of the company’s fossil fuel business, promising to help the energy player create a “more ambitious plan for the company” if his campaign is successful.

In a letter to AGL shareholders sent ahead of the June 15 meeting to consider the spin-out of the company’s coal fired power assets, Mr Cannon-Brookes stepped up his attack on AGL’s plan to split, telling shareholders their investments in Accel Energy be worth nothing if the company is wrong about the place of its coal-fired power stations in the National Electricity Market.

The letter, sent in the wake of the May 6 release of the scheme documents covering the demerger, argues shareholders will receive lower dividends than if the company stays together, and means shareholders could miss out on taking advantage of the business opportunities that flow from Australia’s energy transition.

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, and about half of the company’s register is held by retail investors – generally seen as less likely to vote.

Mr Cannon-Brookes’ privately-held Grok Ventures snared an 11.3 per cent stake in AGL in early May, with the Atlassian billionaire since ramping up his campaign to block the split. Those shares were acquired through derivative instruments that allowed Grok to build up a substantial position in AGL without on-market buying that might have spooked the market or lifted the company’s share price.

On Tuesday Grok is believed to have converted some of those derivative instruments into shares in AGL, with 292.4 million shares changing hands – or about 5 per cent of the company – at $8.75.

If the trade was attributable to Grok, it cements Mr Cannon-Brookes place on AGL’s register ahead of the June 15 shareholder vote, coming as the Atlassian billionaire ramped up his rhetoric on the demerger in a pitch directly to smaller shareholders.

“We are worried about Accel Energy’s cash flow profile based on the future profitability of its coal assets,” Mr Cannon-Brookes told AGL shareholders.

“The Independent Expert’s Report did not validate the board’s claim that coal-fired power stations owned by Accel Energy will continue to be profitable assets through to their current target closure dates, reinforcing our doubts regarding the company’s ongoing solvency.”

AGL boss Graeme Hunt rejected any suggestion Accel would struggle after the demerger, saying the Mr Cannon-Brookes’ letter to shareholders was “a lot of rhetoric but little detail from someone who has not provided a plan, and whose interests are not aligned with the interests of thousands of our other longstanding shareholders”.

“The fact is Accel will have an investment grade credit rating and just two weeks ago one of the world’s largest investors in renewables, Global Infrastructure Partners, committed to Accel’s Energy Transition Investment Partnership which includes development of a 2.7GW pipeline of new renewable energy projects via an investment of up to $2 billion,” he said.

“The demerger represents decisive action towards development of renewables and decarbonisation, and we can do it in a way that ensures reliable and affordable energy.”

Mr Cannon-Brookes also told shareholders he did not believe the value of shares in the two companies would increase in value after the split.

“The scheme booklet confirms our view that AGL Australia and Accel Energy will be smaller, weaker companies that are more costly to run,” he said.

Mr Cannon-Brookes did not outline his plan for AGL if his tilt at convincing shareholders to block the split is successful, saying only that he believed the long-term future for shareholders was best served by ensuring it remained together.

“We intend to work with the board to listen to shareholders and set a more ambitious plan for the company. A plan that attracts capital and customers. A plan that ensures that AGL Energy’s workers and communities are beneficiaries of this economic opportunity. One that delivers dividends and shareholder value,” he said.

Mr Hunt said AGL shareholders should be concerned that the Atlassian founder had not outlined any plans for AGL, beyond blocking the demerger.

“We’ve been meeting with a number of investors and shareholders over recent days and they are very concerned that Grok has not articulated a plan beyond scuttling the demerger, and are also concerned that they might not be revealing their plan because of what it could mean for shareholder value,” he said.

Along with bidding partner Brookfield, Mr Cannon-Brookes launched a failed takeover play for AGL earlier this year, opening with a $7.50 a share offer before upping the bid to $8.25.

AGL shares closed up 22c to $8.65 on Tuesday, ahead of the top end of that bidding range.