Here’s why Mike Cannon-Brookes isn’t giving up on AGL (ASX:AGL)

Mike Cannon-Brookes still wants to buy AGL.

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Key points

  • AGL could still end up being acquired by the Mike Cannon-Brookes consortium
  • Whilst the first bid was rejected, activity is ongoing for a potential second bid
  • The consortium has plans to shut the coal plants sooner, replacing them with renewable energy

The AGL Energy Ltd (ASX: AGL) share price has jumped higher after a takeover bid that was rejected. Mike Cannon-Brookes isn’t going to give up on acquiring AGL yet.

For readers that didn’t see the news, these are some of the details of the recent bid:

Rejected bid

Mr Cannon-Brookes and Brookfield Asset Management lobbed a bid of $7.50 per share for AGL. This represented a 4.7% premium to the prior closing AGL share price of $7.16 on 18 February 2022.

The AGL Energy board thought that the proposal “materially undervalued” the company on a ‘change of control’ basis and wouldn’t be in the best interests of AGL shareholders.

The board believes that the proposed demerger of AGL Energy to establish two separately listed businesses – AGL Energy and Accel Energy – will deliver better value for shareholders. Both of those businesses plan to pursue action on decarbonisation. The demerger is planned to be completed by 30 June 2022.

Mr Cannon-Brookes will be responsible for 20% of the deal if it goes ahead, whilst Brookfield will go for the other 80%.

Mike Cannon-Brookes to power ahead with AGL pursuit

The AGL share price is still above the takeover bid level, which may suggest that the market is expecting a higher bid to come in.

Mr Cannon-Brookes himself has indicated that the interest is still there according to reporting by The Australian.

The newspaper reported that the consortium is “undaunted” by the opening bid’s rejection. For them, the next step is meeting with some AGL shareholders, talking with the AGL Energy board and perhaps lining up more funding partners that will help get the deal done.

Brookfield’s Asia Pacific chief executive Stewart Upson was quoted by The Australian:

Capital is required not just to invest in the clean, green stuff that everyone likes, but to invest in the businesses that need to transition from being heavier emissions and to get to lower emissions.

It’s designed to invest in a business like AGL, and then responsibly over a period of time – not immediately and say 10 years – responsibly oversee the accelerated transition of the business.

We have a chance to go back and engage with the company again. And look, this is just how these things go in Australia. We’ll have the opportunity to engage with the company and see if we can work our way towards something that the company can be supportive of. We’ll look forward to getting into due diligence and firming things up.

What about the loss of the coal energy generation?

A significant part of AGL’s energy generation, and Australia’s energy generation, comes from coal.

Origin Energy Ltd (ASX: ORG) recently announced that it was bringing forward the closure of Eraring to mid-2025. It said that the influx of renewables has changed the nature of demand for baseload power, undermining the economics of one of the country’s biggest coal power plants.

The AGL bidding consortium has promised not to remove AGL’s large coal power plants from the system until a similar amount of power generation has been installed.

The Australian reported on the consortium’s plan to replace 7GW of energy generation with at least 8GW of clean energy and storage.

Its goal is to make the company have net zero emissions by 2035, with Bayswater and Loy Yang A to close by 2030. This would be more than a decade quicker than the current plans by AGL.

Will power prices go up? Mr Cannon-Brookes says no and there is $20 billion to put towards clean energy and storage.

Accel Energy is the entity that will own the coal power plants after the AGL demerger.

AGL share price snapshot

Today, AGL shares have dropped 1.6%, with the S&P/ASX 200 Index (ASX: XJO) falling 1.3% amid ongoing uncertainty with Ukraine and Russia.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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