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.
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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.
