Mike Cannon-Brookes warns future AGL dividends at risk if group pushes ahead with split; Snowcap against demerger

The Mike Cannon-Brookes fronted group warns that future AGL dividend payments are in jeopardy if the group pushes ahead with its split, as Snowcap enters the fray.

The Mike Cannon-Brookes fronted consortium warns that future AGL dividend payments are in jeopardy if the group pushes ahead with its split, as Snowcap enters the fray.

Future AGL Energy dividend payments are at risk if the group pushes ahead with its split, warns the Mike-Cannon Brookes fronted consortium behind an $8bn bid, as small activist investor Snowcap urged management to dump its demerger plans.

The electricity generator and retailer rejected a $7.50 a share bid from the Sydney billionaire and his investment partner Brookfield, arguing on Monday that a plan to split the company in two would generate more value for shareholders than a takeover offer only pitched at a modest valuation premium.

While the consortium is widely expected to return with a second bid, the debate over the best strategy to unlock value at AGL has drawn in a new voice from the London-based Snowcap, which has written to the company’s board calling for the demerger to be scrapped and coal retirements fast-tracked.

“We are writing, as AGL shareholders, to advocate for what we believe is the third and most obvious path forward. That is to abandon the demerger and pursue an aggressive strategy to transition AGL’s coal assets by 2030. We believe that doing so has the potential to unlock substantial value for AGL’s shareholders, whilst delivering huge environmental and social benefits,” Snowcap said in a letter to chairman Peter Botten published on its website.

Snowcap has previously been characterised as a little-known short seller after it attacked environmental credentials of listed waste management business Bingo Industries in a move aimed at derailing a potential $2.3bn takeover.

The investor also pointedly said it agreed with AGL’s decision to rebuff the $8bn bid lodged last Saturday and wants the company to stay as a listed entity for transparency and accountability reasons.

“We believe that in order to address its current share price discount, AGL must abandon the proposed demerger and commit to close down its coal plants by 2030 as part of a broader, accelerated transition plan. Doing so has the potential to unlock 30-60 per cent of upside for shareholders and avoid 385 million tonnes of future greenhouse gas emissions.”

The consortium led by Mr Cannon-Brookes also jumped back into the debate, warning of dividends to investors being cut if the demerger proceeds.

“We agree with Snowcap’s analysis that the demerger is not viable and will destroy shareholder value. The fact is that if AGL was to transition away from its most carbon intensive thermal generation assets on an accelerated timeline it would take a substantial amount of capital that AGL is unlikely to be able to access in the public markets and would require the company to dramatically reduce or cease paying dividends,” a consortium spokesman said.

Shareholders in the 180-year-old electricity company are due to vote in June 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.

Mr Cannon-Brookes and his investment partner Brookfield plan to shut AGL’s coal plants by 2030, meaning Victoria’s Loy Yang B station would close 15 years earlier than currently scheduled in 2045.

AGL said it was an unworkable plan and the consortium would not be able to roll out $20bn of investment quickly enough to replace the lost baseload capacity.

AGL said the call by both the consortium and Snowcap to close down coal early would backfire.

“This cannot be an argument of simply replacing thermal generation with renewables – it must take into account the firming technology and whole system investment needed to support the grid,” an AGL spokeswoman said. “2030 is less than eight years away and if we transition before the system is ready – reliability will be at risk, costs will inevitably flow on to customers and communities will be impacted.”

It is unclear how big Snowcap’s stake is in AGL at this stage. Shareholdings under 5 per cent don’t have to be disclosed to the ASX. However, substantial shareholders and top 20 are disclosed once a year in annual reports.

AGL shares closed 0.7 per cent lower at $7.60 in a sharply lower market.