Power play fails on lack of detail

The aborted takeover bid for AGL by an odd-couple consortium of Canadian investment group Brookfield and technology billionaire Mike Cannon-Brookes has shown that when it comes to running big industrial companies that lie at the heart of the national economy, detail matters. The rules that apply in the celebrity-hyped world of big tech, where price multiples are staggeringly high and profits sometimes optional, don’t apply in the real world.

From the outset it appeared that Brookfield and Mr Cannon-Brookes had differing objectives. Mr Cannon-Brookes was looking for a trophy example of decarbonisation on a global scale. He was betting this could be achieved through the rapid closure of AGL’s coal-fired power stations in NSW and Victoria. In the view of his supporters, success would help to renovate Australia’s reputation for not doing enough to combat climate change.

Brookfield was looking to extend its $50bn investment portfolio in Australia that includes hospitals through Healthscope, port operations through Patrick Corporation, and Victoria’s electricity transmission distribution business, AusNet. Brookfield may well share the Cannon-Brookes decarbonisation dream that is reportedly able to attract large amounts of climate-related boutique capital. But the extent to which this continues to be the case, as the world’s financial and energy markets recalibrate in response to the new reality of war in Europe, remains to be seen.

By abandoning the bid now, Brookfield appears to be leaving the way open to move ahead possibly under its own steam at a later date. The way the initial bid was pitched as a decarbonisation play fronted by Mr Cannon-Brookes left Brookfield exposed on many fronts. It ran head-on into federal government warnings over electricity security and affordability. And it raised the interest of regulators because of the foreign ownership rules and the vertical integration and concentration it would have caused in the electricity sector.

For AGL, the bid was considered to be opportunistic given the fact the company was midway through a historic restructure with the company share price trading at a two-decade low.

More than anything, the decarbonisation aspirations of the bid were easily dismissed by AGL as being naive. If closing down coal quickly at a profit could be done without jeopardising power supplies and risking a regulatory backlash, AGL would be doing it already. AGL said the promised spending by the bidding consortium to replace production from coal assets that would be closed was about one-third of what was required. In addition, vast spending was required on infrastructure that would be outside the company’s control. From Mr Cannon-Brookes and Brookfield, there was no detail on how the decarbonisation plan would actually work.

The experience from overseas is that when it comes to decarbonisation, enthusiasm often is not enough. Making headlines is not the same thing as making money. Both Brookfield and Mr Cannon-Brookes are serious players in their respective fields. The market will ultimately decide what happens to AGL but the government does have a role to ensure the nation’s energy market continues to function for the benefit of consumers and taxpayers, and does not become the plaything of the rich and famous.