Own AGL shares? Here’s why the company’s demerger could be dead in the water

AGL’s new major investor is campaigning against the demerger, saying it “makes no sense, or cents”.

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Key points

  • AGL's planned demerger is facing a new challenge as Mike Cannon-Brookes announces he intends to vote his shiny new 11% stake in the company against the split 
  • The billionaire is also campaigning to convince other shareholders to vote 'no', with his investment vehicle stating "the demerger will create two weaker, interdependent companies with significant operating risk and dis-synergies" 
  • AGL's board has hit back at the claims, saying it still believes the demerger is in the best interests of shareholders 

Mike Cannon-Brookes has upped his holding in AGL Energy Limited (ASX: AGL)’s shares to 11.28% and plans to put that muscle to work in blocking the company’s planned demerger.

AGL’s newly minted largest shareholder announced his position last night, saying the “flawed demerger … makes no sense, or cents”.

The S&P/ASX 200 Index (ASX: XJO) energy producer and retailer’s board has hit back, responding to Cannon-Brookes’ stance this morning. It said it’s still confident the demerger is in the best interest of shareholders.

At the time of writing, the AGL share price is $8.34, 3.31% lower than its previous close.

Let’s take a look at what all this could mean for the 185-year-old company’s future.

AGL share price slips as Cannon-Brookes ups the ante

The AGL share price is in the red on Tuesday. Its slide comes as the company responds to Cannon-Brookes’ latest attempt to block its planned demerger.

According to Cannon-Brookes, his private investment vehicle, Grok Ventures is now AGL’s largest shareholder.

And the venture has not only committed to voting the stake against AGL’s demerger. It’s also working to convince other shareholders to vote ‘no’ at AGL’s upcoming scheme meeting.

Grok Ventures operates the Keep it together Australia campaign, which argues against the split.

The demerger would see AGL Energy split into energy generating business, Accel Energy, and energy retailer, AGL Australia.

A media release, published by Keep it together Australia, notes:

Grok firmly believes the demerger will create two weaker, interdependent companies with significant operating risk and dis-synergies.

Grok suggests Accel Energy will not be able to fund its transition or meet its liabilities due to high leverage, thermal coal exposure, significant remediation costs and a reduced appetite for coal exposure from equity and debt investors.

“[AGL] has had a proud history of leaning into the future, innovation, and embracing the latest in technology,” Cannon-Brookes tweeted last night.

“However, AGL is also Australia’s single largest emitter of carbon, at over 40mt. Alone it emits more CO2 than the entire countries of Sweden, Portugal, Ireland, or New Zealand.”

Cannon-Brookes also commented on Keep it together Australia’s release, saying:

By not transitioning fast enough away from fossil fuels, the board has presided over AGL’s value plummeting to the tune of almost 70% in five years.

We intend to vote every AGL share we control at the relevant time against the demerger, and we call on fellow AGL shareholders to vote against the demerger to avoid further value destruction.

AGL board claps back

The energy producer and retailer’s board responded in an ASX release this morning.

It said the demerger could help maximise growth by providing each business its own “freedom”, with separate dividend policies, capital structures, and future values.

“AGL remains committed to progressing the proposed demerger with a view to achieving implementation by 30 June 2022 and a responsible transition of Australia’s energy system,” the board stated.

As The Motley Fool Australia’s Tristan Harrison reported earlier today, AGL’s demerger needs the support of 75% of shareholders.

Assuming Cannon-Brookes’ stake will slide into the ‘no’ box, the demerger decision lies with the voting power of 13.72% of AGL’s shares.

That’s not the only news that could be moving the AGL share price on Tuesday. The company announced a $2 billion renewable energy deal this morning.

The deal could see Accel Energy managing a 2.7 gigawatt renewable energy pipeline. It’s subject to the demerger’s completion.

Motley Fool contributor Brooke Cooper 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 and Twitter. 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.

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