AGL (ASX:AGL) share price higher on structural separation plans

The AGL Energy Limited (ASX:AGL) share price is pushing higher on Tuesday after announcing plans to split into two separate businesses…

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In morning trade the AGL Energy Limited (ASX: AGL) share price is pushing higher.

At the time of writing, the energy retailer’s shares are up 3% to $10.50.

Why is the AGL share price pushing higher?

Investors have been buying AGL’s shares after they responded positively to a major announcement this morning.

According to the release, the company plans to create two leading energy businesses focused on executing distinct strategies, via a structural separation.

The company intends to split the business as follows:

  • New AGL – Australia’s largest multi-product energy retailer, leading the transition to a low carbon future.
  • PrimeCo – Australia’s largest electricity generator, supporting the economy as the energy market evolves.

Why is AGL doing this?

AGL’s Managing Director and CEO, Brett Redman, believes the proposed separation will give each business the opportunity to execute their own respective strategies and growth agendas.

He commented: “The accelerating market forces of customer, community and technology are driving the imperative to create this new path and separate AGL into two distinct organisations.”

“The proposed structural separation would give each business the freedom, focus and clarity to execute their own respective strategies and growth agendas, while playing an equally important, but different, role in Australia’s energy transition.”

New AGL

Commenting on New AGL, Mr Redman said: “New AGL would have a strong, stable and growing customer base, delivering electricity, gas, internet and mobile services to more than 30 percent of Australian households.”

“This strong customer base would be backed by a leading energy trading capability and a 2.1 GW portfolio of flexible generation and storage assets to manage peak demand events. And, importantly, New AGL would be carbon neutral for scope one and two emissions on day one, with a clear pathway to full carbon neutrality,” he added.

PrimeCo

PrimeCo will generate approximately 20% of the total electricity demand across the National Electricity Market (NEM), making it Australia’s largest electricity generator supplying major wholesale, industrial, and retail electricity users.

Mr Redman commented: “PrimeCo’s first focus would be the safe and reliable running of its generation portfolio. As the low-cost backbone of the NEM it would be well positioned from day one to support the Australian economy as the energy market continues to evolve.”

“PrimeCo’s strong base generation position brings with it a capacity to invest in development options including the transformation of existing generation sites into the energy hubs of the future, as well as development of its 1,600 MW wind development pipeline.”

What’s next?

AGL will now commence a process of engaging with shareholders, regulators, government, and workforce stakeholders. After which, it is aiming to confirm the timing and nature of the proposed structural separation by end of FY 2021.

The proposed separation remains subject to this consultation process and to ongoing internal AGL analysis.

Shareholders will no doubt be hoping that this plan unlocks value just like Telstra Corporation Ltd (ASX: TLS) is expected to do with its own separation plans.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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