When, why, how? All the details on the AGL demerger and what might happen if it flops

The coming weeks could be transformational for the 185-year-old company.

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Key points

  • The AGL demerger is facing new doubts this week amid Mike Cannon-Brookes' vocalised intent to vote 'no' on the split
  • Shareholders will have their chance to vote on the plan – which will see AGL divided into AGL Australia and Accel Energy – in mid-June
  • Opinions vary wildly on what might happen if the demerger is shot down

AGL Energy Limited (ASX: AGL) is having a volatile week and its share price is showing the strain. As market watchers are likely aware, AGL’s long-planned demerger is facing new questions in the face of declared disapproval from its new major shareholder, tech billionaire Mike Cannon-Brookes.

The major facets of the demerger process are set to kick off in coming weeks. So, without further ado, let’s check what shareholders can look out for as the push to divide the 185-year-old company heats up and what might happen if it fails.

At the time of writing, the AGL share price is $8.20, 5.5% lower than it was at the end of last week.

For context, the S&P/ASX 200 Index (ASX: XJO) has slipped 1.7% in that time.

Why is AGL pursuing a demerger?

The embattled ASX 200 energy producer and retailer is pushing to split in two in an effort to protect shareholder value.

It expects the split will help the resulting businesses go their separate ways on their journeys to renewable energy.

A new entity, dubbed Accel Energy, will take the reins of AGL’s electricity-generating assets.

That includes the company’s coal-fired power plants, gas assets, and wind farms, as well as its development pipeline housing battery and hydro projects.

Meanwhile, AGL Australia will take on the company’s electricity retailing, trading, storage, and supply business. It will also walk away with the AGL brand.

As part of the demerger plan, AGL shareholders will be handed one share in each company. Accel Energy is also expected to retain a 15% to 20% holding in AGL Australia.

What still needs to happen before AGL can split?

In the coming weeks, shareholders will be able to have their say on the AGL demerger.

The company plans to release a scheme booklet in the middle of this month. That document will provide more details on the split.

Shareholders will have a month or so to thumb through the resource. They will then vote on the demerger in mid-June.

If the plan is agreed upon by 75% of shareholders and approvals received, the demerger will be implemented on 30 June.

Cannon-Brookes announced his intent to vote ‘no’ with his new 11.28% holding in AGL’s shares yesterday. That would leave the balance of power with 13.78% of the company’s shares.

What might happen if AGL’s demerger plan flops?

Understandably, AGL’s newly-crowned largest shareholder’s stance has raised questions on the demerger’s fate. Many are wondering what might happen if the plan fails to receive shareholder approval.

Cannon-Brookes expects AGL’s board will stand down if the company’s investors disapprove of the split, reports The Australian.

“It would be hard for them to stay in place,” the billionaire told the publication.

Meanwhile, Morgans doesn’t think anything drastic would come from a resounding ‘no’ on the demerger.

While the analyst notes the demerger’s flop could hamper AGL’s plans to restructure its debt, it’s confident the company will manage just fine.

“Despite the large amount of effort the company has expended in pursuing the demerger, we don’t see a major risk to short term cash flows should [it be voted] down,” Morgans analyst Max Vickerson stated.

Though, fellow broker JP Morgan has reportedly predicted a far more dramatic outcome of the demerger’s failure.

“A failed vote would likely destabilise the business, potentially leaving management in an untenable position and opening the company up to be acquired,” JP Morgan analyst Mark Busuttil said, as quoted by The Oz.

AGL share price snapshot

Despite its struggles this week, the AGL share price is performing well in 2022.

It has gained 33.5% since the start of the year. Though, it’s still almost 10% lower than it was this time last year.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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 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 Scott Phillips.

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