The AGL Energy Limited (ASX: AGL) share price has been on a bit of a rollercoaster today. AGL shares initially opened more than 2% higher this morning and climbed all the way to $10.43 soon after open. But then a case of cold feet seemed to set in, and AGL shares spent the rest of the day in freefall. The AGL share price closed at $9.81, down 3.54% for the day, and down close to 6% from the morning's high watermark.
AGL set the investing world abuzz this morning when it announced a new structural separation plan. As we reported at the time, AGL will split into 'New AGL' and 'PrimeCo'.
New AGL will house the company's retailing arm, whilst PrimeCo will hold the company's electricity generation assets (power plants and the like). AGL does not yet have an end date for these plans yet, but told investors that it hopes to have one by the end of the financial year. It's still unclear whether this plan will result in a full-scale demerger with an ASX spinoff.
So why the two-faced reaction from the market? Well, the initial positive reaction is understandable. The ASX tends to love a demerger (even a potential one), seeing as it often unlocks value for shareholders. We discussed this earlier today in regards to the Telstra Corporation Ltd (ASX: TLS) share price.
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Are two AGLs better than one?
We have also seen this play out in real time with the Wesfarmers Ltd (ASX: WES) share price over the past few years. Wesfarmers split off Coles Group Ltd (ASX: COL) from its stable back in November 2018. Both companies now trade independently on the ASX. This move has been almost universally positive for anyone who held Wesfarmers shares before the split. Since November 2018, Coles shares are up more than 22%, and Wesfarmers shares are up more than 60%. That's not including the generous dividends from both companies that have been paid out since either.
But here's where AGL might run into some issues if it does decide on a demerger.
ESG (ethical, social and governance criteria) investing has never been a more powerful force on the ASX than it is today. Now AGL may tout its 'New AGL' as "leading the transition to a low carbon future". But the reality is that PrimeCo will still house Australia's largest portfolio of coal-fired power plants. These include Loy Yang A and Bayswater, as well as the ageing Liddell plant, which will soon be shuttered anyway.
How many investors, managed funds and exchange-traded funds (ETFs) with ESG in mind will want a slice of this new company? That's a question AGL investors might want to ask themselves. And perhaps they are already asking it, judging by the performance of AGL shares this afternoon.
