A shareholder of AGL Energy Ltd Ltd (ASX: AGL) has said the planned demerger would be "value destructive and environmentally disastrous".
The 'activist' investor Snowcap based out of London published a letter to the leadership of AGL.
'Value destructive' demerger
Snowcap said that AGL shareholders are currently faced with two "suboptimal" options.
The current plan is the demerger, which Snapcap described as a value destructive and environmentally disastrous plan backed by management. It said that the takeover offer materially undervalued the AGL business.
The demerger plan is to split AGL into an energy retailing business and an energy generation business called Accel Energy. It's Accel that will own the coal power plant assets.
Management believe that each business being able to decide on the best decisions for long-term value creation will be more effective.
Snowcap said that the demerger is flawed and is a "half-baked" attempt by management to financially engineer its way around AGL's problems rather than address the root cause. The investor believes that the demerger wouldn't address environmental concerns and it would make coal closure much harder.
However, it must be said that AGL has stated that each of its businesses would be aiming to reduce their carbon emissions by around half over the next decade or so.
Snowcap throws shade at management's performance
The investor said that AGL needs to pursue a third option: abandon the demerger and takeover talks, instead it should aggressively transition away from coal by 2030.
Mike Cannon-Brookes and Brookfield also want to accelerate the transition away from coal energy generation, but Snowcap argues that doing so within a combined, ASX-listed AGL "has the potential to unlock substantial value" for AGL shareholders, whilst delivering "huge" environmental and social benefits.
Snowcap said that the AGL share price has underperformed its peers and the wider Australian market and now trades at a "substantial" discount to the intrinsic value.
The investor said that AGL hasn't adapted to the changing energy markets and a shift of investor attitudes about climate. It was pointed out that over the last decade, AGL has acquired nearly 7GW of coal power but "severely under-investing" in renewables.
Snowcap says AGL is now of the most carbon-intensive utilities on the planet and has refused to "meaningfully" bringing forward the retirement dates of the two largest coal plants – Loy Yang A and Bayswater, which are currently 2045 and 2033 respectively.
That compares to Origin Energy Ltd (ASX: ORG) which is closing the large coal power plant Eraring seven years early.
Up to 60% upside for the AGL share price?
Snowcap believes that by making the changes it has suggested – abandoning the demerger and closing the coal power plants early – could lead to an upside of between 30% to 60% for investors and avoid 385 million tonnes of future greenhouse gas emissions.
The commitment of an early coal closure can address the "core reason" for the current AGL discount and deliver huge maintenance capex savings over the coming decade.
Regarding the takeover bid, Snowcap said that it recognises the flaws of the demerger proposal and the strategic merits of an early transition. It noted there are advantages to managing the transition under the transparency and accountability of public ownership.
