AGL Energy Ltd (ASX:AGL) says no to Alinta and the Government

AGL Energy Ltd (ASX: AGL) has announced that it has completed its assessment of the offer from Alinta and Chow Tai Fook Enterprises.

Readers may remember that on 30 April 2018 AGL received an offer of $250 million from Alinta and Chow Tai Fook Enterprises to acquire the Liddell Power Station, the associated assets and the site.

AGL has completed its assessment and has told the bidders that it will not proceed with the offer.

The AGL Board said that the offer wasn’t in the best interests of AGL or shareholders because it significantly undervalues future cash flows to AGL of operating the Liddell Power Station until 2022 and the repurposing of the site thereafter.

To come to this conclusion AGL sought external expert advice on factors such as capital expenditure requirements across all plant components and the reliability and safety profile of the ageing power station.

AGL reaffirmed its plan to close Liddell in December 2022 and will continue its New South Wales generation plan.

The Australian Energy Market Operator has confirmed that completion of the generation plan will address the capacity shortfall that may occur as a result of Liddell’s closure.

Foolish takeaway

The AGL share price is up 1.2% this morning in response to the news, clearly investors like this decision.

AGL shares are currently trading at 13x FY19’s estimated earnings, which seems very reasonable.

I’m unsure on AGL’s future growth at the moment. The rise of electricity prices is good in the short-term, but encourages more people to solar power in the long-term.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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