AGL Energy says it is not sure whether an unsolicited takeover bid by billionaire Mike Cannon-Brookes and Canadian fund manager Brookfield is really over – or if the consortium has just hit the “pause button”.
AGL dismissed an increased offer of $8.25 a share made late on Friday. It valued the company at about $8.5bn including debt.
“We think that [the revised bid] is still well short of what is traditionally required in these kinds of circumstances,” Graeme Hunt, AGL’s chief executive, said while declining to say what sum would have enticed the board to engage with the suitors.
In the wake of the rejection, AGL’s shares ended Monday down 13 cents, or 1.75%, at $7.30. The overall market declined about 1%.
Hunt said shareholders would gain more confidence in the company’s plans as it released more information about the looming mid-year split into two. One entity will house the 185-year-old company’s power plants and the other its retailing arm.
But Hunt said he would not rule out Brookfield, which had led the bidding, and Cannon-Brookes may yet make another offer after the founder and part-owner of Atlassian tweeted on Sunday night the consortium was “putting our pens down”.
The Brookfield-Grok consortium looking to take private & transform AGL is putting our pens down - with great sadness.
— Mike Cannon-Brookes 👨🏼💻🧢🇦🇺 (@mcannonbrookes) March 6, 2022
This weekend, the board rejected our raised offer of $8.25. 46% more than the price of $5.55 about 90 days ago 🧵 (1/3) pic.twitter.com/c5KYwGozDo
“We had no conversation with Cannon-Brookes at all, and what he means by that, I have no idea,” Hunt said. Brookfield, though, indicated they wanted to “get on with life”.
“Whether they’re hitting the pause button, or they’re walking away, who knows?” Hunt said. “I guess that’s a question for them.”
Spokespeople for Brookfield and Grok Ventures, Cannon-Brookes’ family investment company, said they had nothing to add to AGL’s public rejection of the bid.
But people within AGL remain convinced that the consortium’s interest in AGL is not over and that the duo hasn’t made its final sortie. “They’re not done,” was one view.
It’s understood that how shareholders respond to the rejection in coming weeks will be watched closely by the consortium, as will the formal release of AGL’s demerger plans due by mid-May.
One source also highlighted Cannon-Brookes’ tweet saying that the demerger path was “a terrible outcome for shareholders, taxpayers, customers, Australia and the planet we all share”. That assessment hadn’t changed.
Cannon-Brookes and Brookfield had proposed accelerating the closure of AGL’s coal-fired power plants so that the company, which now accounts for about 8% of Australia’s total greenhouse gas emissions, would be carbon neutral by 2035.
Along with the takeover price, the consortium said they were prepared to pour $20bn to meet that goal, including closing all three remaining AGL coal plants by 2030.
Hunt declined to provide a “threshold” price that would have attracted board interest in the bid, adding only that the 15% premium to the one-month average price was not a fair price.
“We see very clearly that by splitting the company, there’s more value to be unlocked,” he said.
Hunt said there was also “more scope” to accelerate its own timetable of coal plant closure, depending on how the electricity sector developed in coming years.
Its Liddell plant in the NSW Hunter Valley will close by April 2023, with uncertainly only over the timing of the nearby Bayswater plant and Loy Yang A in Victoria. Last month, AGL put a closure date of no later than 2033 for Bayswater and 2045 for Loy Yang A, but offered a “window” of several years earlier for both.
“It relies on projects and relies on planning, and the rise of approvals all the way from generation through to firming capacity to transmission and distribution,” Hunt said. “All of that may well lead to earlier [closure] dates than are on the table at the moment.”
“We are not saying we should not decarbonise,” he said. “What we’re saying is we need to do that in such a way that the glide path does not lead to a crash landing or runway overshoot.”
What may increase, though, are energy prices after Russia’s invasion of Ukraine and the subsequent sanctions.
AGL mines its own brown coal at Loy Yang and has a couple of years of relatively cheap black coal for its Hunter plants locked in, offering it some shield to higher fuel prices. However, gas prices, which often influence power prices, are soaring.
“We’ve seen coal prices go up very, very much in the last few weeks as a result of what’s happening in Europe, and similarly with gas,” Hunt said.
“All of those all kinds of uncertainties all point towards higher energy prices,” he said. “It’s just a question of how much, for how long.”
