AGL share price in focus amid Cannon-Brookes raid

AGL shares are under the microscope after Mike Cannon-Brookes launched a bid to block the demerger.

| More on:
Man holding different Australian dollar notes.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The AGL share price is under the spotlight after Mike Cannon-Brookes launched a bid to block the planned demerger
  • Cannon-Brookes believes the business should remain as one company, focusing on greener energy
  • The board says the business would do better operating as two separate entities, with different business plans

The AGL Energy Limited (ASX: AGL) share price is under the spotlight today after Atlassian billionaire Mike Cannon-Brookes launched an attempt to build a blocking stake in the energy business.

For readers unaware of what happened earlier this year, Cannon-Brookes and Brookfield tried to buy AGL outright.

However, in early March, the AGL board rejected the improved ‘indication of interest’ from Cannon-Brookes and Brookfield. The AGL board said the offer price of $8.25 per share was “still well below both the fair value of the company on a change of control basis and relative to the expected value of the proposed demerger.”

AGL is pursuing a demerger to split its energy retailing and energy generation segments. However, Cannon-Brookes doesn’t believe this is the right move environmentally or for shareholders.

Cannon-Brookes launches blocking bid

According to reporting by the Australian Financial Review (AFR), Cannon-Brookes’ Galipea Partnership acquired an almost 11.3% stake in AGL by using derivatives.   

AGL is going to need 75% of shareholder votes to approve the demerger.

AFR reported that in a letter to the AGL board, Cannon-Brookes said the plan to demerge was “globally irresponsible” and “flawed”. He also said the plan “risks a terrible outcome for AGL shareholders, AGL customers, Australian taxpayers and Australia.”

Bearing in mind that the last takeover offer was at an AGL share price of $8.25, the stake that was just acquired was bought in two separate transactions at $8.46 per share and $8.62 per share.

Following this transaction, Cannon-Brookes is now the largest shareholder of the business. One of the main reasons he wants to stop the demerger (and buy the business) is that AGL is reportedly Australia’s largest, single carbon emitter.

Cannon-Brookes believes a greener future would be more beneficial for the company and shareholders. He wrote in his letter:

We have purchased this substantial interest in the company because we fundamentally believe there can be a better future for AGL.

A future that delivers cheap, clean and reliable energy for customers. A future that accelerates the transition to net-zero, and a future that creates opportunities for AGL and value for its shareholders along the way.

The AFR also quoted what Mr Cannon-Brookes said after the launch of the bid:

After we get through the demerger vote, we can work out how to reimagine, refresh and reinvigorate the company, but that will be for afterwards. My expectation is to be on the shareholder register for a very long time.

I’ve got a pretty good track record when it comes to business, understand technology pretty well, I’m pretty intimately involved with the energy industry…so I think I have some skills that are highly aligned with what this company needs to grow and prosper.

Investors may be questioning whether AGL could simply do what Mr Cannon-Brookes is proposing as two separate businesses. Mr Cannon-Brookes has an answer for that – being one company would “make it more resilient and able to reduce emissions faster.”

AGL still plans to demerge

Despite the growing campaign to block the demerger, AGL’s board said it’s still committed to the plan and still thinks it’s in the best interests of shareholders.

The plan is that AGL Australia will be an energy retailer and be backed by a portfolio of firming, storage and renewable assets.

Accel Energy will be Australia’s largest electricity generator by providing low-cost energy, while “driving the energy transition” by repurposing existing generation sites into low-emission industrial hubs and progressing a pipeline of renewable energy projects.

The board tried to sell the deal by saying it will give each company the freedom to pursue individual strategies and growth initiatives. It “supports shareholder returns through distinct dividend policies and capital structure” and it leaves the future value of two ASX-listed companies with shareholders.

AGL share price snapshot

Over the last month, AGL shares have risen by around 7%. That includes a slight fall following the release of yesterday’s updated FY22 guidance. In the update, AGL advised underlying earnings before interest, tax, depreciation and amortisation (EBITDA) is now expected to be between $1.23 billion and $1.3 billion, down from guidance of $1.275 billion and $1.4 billion.

Underlying net profit after tax (NPAT) is expected to be between $220 million and $270 million. This is down from the previous guidance range of between $260 million and $340 million.

This came after the generator fault at the Loy Yang A Power Station in Victoria.

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 positions in and has recommended Atlassian. 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 Scott Phillips.

More on Mergers & Acquisitions

Projection of two hands being shaken on a deal.
Mergers & Acquisitions

2022 has seen a record first half for ASX mergers and acquisitions. Here’s the lowdown

Deals have hit new heights in Australia so far this year.

Read more »

Man looking excitedly at ASX share price gains on computer screen against backdrop of streamers
Mergers & Acquisitions

Guess which ASX software share just rocketed 150% on takeover news

PayGroup shares are moving into uncharted territory today.

Read more »

Bank Shares

ANZ share price rises as MYOB acquisition rumours swirl

Is ANZ about to make a major acquisition?

Read more »

A man wearing a white coat and glasses is wide-mouthed in surprise.
Mergers & Acquisitions

Why is the ResApp share price crashing 29% today?

ResApp shares have been hammered on Tuesday...

Read more »

Busy freeway and tollway at dusk
Mergers & Acquisitions

2 ASX 200 infrastructure shares ‘ripe for takeout’: expert

Let's take a closer look.

Read more »

a medical person in full protective clothing holds a tray of Covid-19 vaccinations amid a haze caused by cold and ice.
Healthcare Shares

ResApp share price frozen as $180m Pfizer takeover bid hangs in the balance

The value of Pfizer's takeover bid may soon come to light.

Read more »

A graphic showing three hands holding red paddles with the word BID, indicating a bidding war for an ASX share company
Technology Shares

Infomedia share price surges 9% following third takeover approach

Infomedia has received a third takeover approach...

Read more »

Three colleagues stare at a computer screen with serious looks on their faces.
Consumer Staples & Discretionary Shares

Own Pointsbet shares? Here’s why the company rebuffed a Murdoch takeover approach

Is management betting on better times for Pointsbet shares?

Read more »