The patience of AGL investors and the market is being sorely tested
After yet another weekend in crisis management for the board of AGL, this much is surely clear from news broken in The Australian on Sunday. The vote may not even go ahead.
The board, led by Peter Botten as chairman and Graeme Hunt as CEO has blinked. It must now fear that the weight of opinion, and in particular the opinion of one or more major shareholders has shifted.
This buckling means that should the board try to proceed with the planned demerger vote, market confidence will be gone.
Pressure has been piling on the board led by activist shareholder Mike Cannon-Brookes.
First there was the unsuccessful tilt at AGL by Cannon-Brookes’ Grok Ventures and Brookfield. Then Grok appeared on the AGL register with 11.3 per cent in its own right.
Last week super fund HESTA sitting on the register announced that it would oppose the merger. At 0.36 per cent, its may be small but it send a signal that other industry super fund shareholders like Australian Super, UniSuper and Aware may follow suit.
Industry super’s stake is also not large. What is large is the number of retail shareholders in AGL. Institutions only hold around 40 per cent of the stick.
The huge blow for the board was the result of the federal election and the teal seat victory.
Labor policy is for a 43 per cent reduction in emissions by 2030 but the teal message is far more worrying for Botten and Hunt.
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Around 10 per cent of the AGL register is owned by shareholders who live in the moneyed seats like Wentworth, Kooyong, Goldstein and MacKellar.
To win his campaign to stop the demerger, Cannon-Brookes needs 25 per cent of the votes of shareholders who decide to vote. And not everyone votes, making Grok’s 11 per cent more powerful. Traditionally the retail turnout is around 60 per cent. By blinking, the board is putting up the white flag. It must have come to the view that one or more of its major shareholders has determined to vote against the demerger.
In the Grok camp there is increasing confidence. Results from the proxy solicitation it has done show that for every shareholder voting for the demerger, two are now saying they will vote it down. AGL, which is also running its own numbers will presumably be seeing a similar trend.
This all comes just ahead of the release of recommendations from the four proxy advisers, Ownership Matters, Glass Lewis, ISS, ACSI and the Australian Shareholders Association. A recommendation against the demerger by any one of these means almost certainly curtains for the demerger. Each of them represent around 10 to 12 per cent of the register.
Institutions take a great deal of notice of proxies and any decision by major shareholders Vanguard, BlackRock or Martin Currie against the demerger would also probably rule it out.
Part of the rationale for the demerger was that retail customers no longer wanted renewables not coal fired power. The Cannon-Brookes argument is that AGL can be operated to phase out all coal fired power far faster than the board’s projections and still deliver shareholder value.
Being part of the energy transition solution as investors is becoming more attractive to sectors like industry super, backing companies that want to phase out their fossil fuels faster. Teal seat shareholders are likely to want the same and no doubt most of those are AGL retail customers.
An announcement from the AGL board is expected tomorrow with speculation of some kind of strategic review. If so, it is very unlikely that Cannon-Brookes will want the current board and management shepherding the review. More likely he wants to spill the entire board.
The proxy advisers have had a complex and moving story to analyse in AGL over the last few weeks. They will also want comfort from Cannon-Brookes that he is no fly-by-night investor which is perhaps one of the reasons Grok has signalled it wants two seats on the board.
It may be that Botten and Hunt still want to dig in: a strategic review usually considers assets sales or potentially a takeover offer. Perhaps they have a white knight in the wings.
But the patience of investors and the market is already sorely tested. How will they respond to a new review just as the AGL saga is about to deliver certainty in a demerger vote?
Another alternative, which is that Hunt offers his resignation, or that Hunt and Botten together do so has also been speculated. If this is case, it should be hoped that board and management is not hollowed out overnight, Star Entertainment style. That too, would be unsatisfactory for shareholders. Botten as executive, at least in the interim would be a far better outcome.