The planned split of AGL Energy that billionaire Mike Cannon-Brookes is trying to foil will cost $260m upfront and $35m in extra costs per year for the demerged entities, documents from the energy giant show.
In separate releases to the ASX on Friday afternoon, AGL laid out its details of the demerger ahead of a 15 June vote by shareholders. As the biggest shareholder following his purchase of a 11.3% holding, Cannon-Brookes can block the move with the support of another 13.7% of share owners.
The company aims to list the two separate entities by 22 June. Accel Energy would hold AGL’s electricity generation capacity, including three coal-fired power plants, while AGL Australia would contain the retailing arm and its 4.5 million energy and telecommunication customers.
The scheme booklet lists advantages of the split such as the increased potential for a “change of control” through a takeover, a clearer identification of the individual value of the separate entities and a faster decarbonisation of operations.
Disadvantages include a one-off transaction cost of $260m and extra corporate and operation costs of $35m a year, while “net tax inefficiencies” will add another $125m. The loss of “operational synergies” from breaking up AGL are another risk as is the potential that court and other necessary approvals won’t be secured.
Grok Ventures, Cannon-Brookes’s family-owned company, revealed the share raid on Monday, with the Atlassian cofounder later saying he had received positive responses to his blocking move.
“Fellow AGL shareholders only need to see that the risks and disadvantages section of the demerger booklet run as long as, and in our view, far outweigh any advantages put forward by company,” a Grok spokeswoman said.
“The booklet does nothing to change our view that the demerger plan promotes a terrible outcome for shareholders, communities and the climate.”
Cannon-Brookes wants to halt the demerger in order to quicken the closure of the Bayswater and Loy Yang A power plants in New South Wales and Victoria, respectively, while the third plant, NSW’s Liddell, is already scheduled to shut by next April.
The bid is his second tilt at AGL in three months after the company’s board rejected a full takeover offer with Canadian asset manager Brookfield in March.
For its part, AGL’s chief executive, Graeme Hunt, said the company believed the demerger was the best way to create shareholder value, noting it was also the board’s unanimous recommendation. It was also supported by Grant Samuel’s independent experts’ report.
“This is a plan backed by real investment and a pipeline of real projects to lead Australia’s energy transition,” Hunt said, adding that both new entities would carry investment-grade credit ratings.
“We have invested $4.8bn in renewable and firming generation in the past two decades – the largest by any ASX-listed company – and that is why today we operate the largest portfolio of renewable generation and battery assets of any ASX-listed company,” he said.
However, activist groups, Greenpeace Australia and the Australasian Centre for Corporate Responsibility said the scheme booklets showed neither AGL Australia nor Accel Energy would operate within Paris climate targets. AGL is Australia’s biggest single polluter.
Accel Energy may also be unable to access capital or insurance due to environmental, social and governance issues, Glenn Walker, a Greenpeace Australia Pacific senior campaigner, said.
“AGL’s claim that the demerged AGL Australia will have ‘leading ESG credentials’ is the very definition of greenwashing, given neither AGL Australia nor Accel Energy will align with Paris climate targets,” Walker said.
“This demerger is a turd rolled in glitter, but the marketing sparkle is fooling no one,” Walker said. “Shareholders and customers can smell the stench of climate and financial failure from here.”
ACCR’s director of climate and environment, Dan Gocher, said AGL had ignored the majority of its shareholders by failing to set Paris-aligned targets for Accel Energy.
“In the absence of further detail on AGL Australia’s scope 3 emissions, particularly its electricity off-take arrangements and upstream gas emissions, it is difficult to determine whether its targets are Paris-aligned,” he said.
“Alignment with the Paris agreement across both demerged entities was a fundamental demand of a majority of AGL’s shareholders less than a year ago,” Gocher added. “We don’t expect AGL’s largest shareholders will take well to being ignored.”
The company’s shares fell 0.8% on Friday to $8.35, a smaller drop than the 2.2% decline of the average of the ASX’s top 200 stocks.
