Brookfield Asset Management and Grok Ventures’ takeover bid was rejected on February 21st by AGL Energy. The A$4.98 billion cash and share deal for full ownership of the firm comes in at A$7.50 per share, a 4.7% increase on Friday 18th’s closing price of A$7.16.
The Canadian investment firm holding nearly US$700 billion (A$960 billion) in assets alongside tech-billionaire and climate activist Mike Cannon-Brookes’ private investment company proposed A$20billion plans. These seek to turn Australia’s largest carbon emitter into a “net zero renewable energy retailer”, replacing the current 7GW of power plants with at least 8 gigawatts of renewable energy and energy capacity. This would accelerate the closure of the three coal plants to 2030, 15 years early, as well as cancelling AGL’s planned demerger in June.
Cannon-Brookes, co-founder of Australian software company Atlassian, stated that AGL were not acting fast enough to decarbonise, nor would they be able to raise the capital needed through public markets. He proposes the consortium’s plans would decrease Australian carbon emissions by 40 million tonnes a year, contributing to global decarbonisation efforts and reaching net zero emissions for the firm by 2035. The tycoon also said that this would result in reduced energy costs and create “over 10,000 Australian jobs” in the process.
AGL Energy were not convinced and swiftly rejected this deal, stating that it undervalued the firm and was not in the best interest of its shareholders. A key driver of this rejection was their planned demerger, which would split the firm into two entities. AGL Australia would focus on energy retail and renewable energy, whilst Accel Energy continue with the remaining coal assets. The company believe this demerger would “unlock shareholder value”.
With AGL’s main competitor Origin Energy announcing that their closure will be seven years earlier than planned, there is rising pressure to switch to renewable energy sources in line with Paris agreements and scientific advice. Decreasing prices of solar and wind energy also are provoking movements in energy markets, forcing coal-fired generators to respond quickly to stay competitive. However, the Australian government has raised concern over the takeover due to potential resulting energy security risk and price rises. Readily available coal supplies, which currently account for around 75% of Australia’s electricity, can comfortably meet the growing demand of the population and provide certainty for investment. Changing this supply and subsequently reducing coal usage would naturally force prices up to compensate for the excess demand, increasing cost of living for consumers and production costs. The effects of this are already being seen with global oil price rises and consideration, particularly in Europe, around energy security due to the Russia – Ukraine crisis.
Nonetheless, Brookfield Asset Management and Grok Ventures persist in negotiations. They are hoping to persuade AGL shareholders to avoid the “potentially value destructive demerger” which could lower share prices through splitting into two entities. With AGL’s chief operating officer proposing that the consortium needs to offer at least 30% premium on share prices, further negotiation seems possible from both parties. What is certain is that no bid will slip under the radar. AGL’s significant market share as one of Australia’s largest energy retailers means that the Australian Competition and Consumer Commission will be keeping a close eye on any proposals.
AGL Energy’s demerger is advised by Maquarie Bank; Brookfield Asset Management are advised by Citi.