Is Cannon-Brookes getting ready to pitch a third takeover bid for AGL shares?

Will Mike Cannon-Brookes make a bid for AGL after shareholders vote on the company’s planned demerger?

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Key points

  • AGL management and brokers are scratching their heads as to what Cannon-Brookes might be planning to do with his holding in the company after shareholders vote on its demerger
  • They have flagged the potential for the billionaire to post another takeover bid for AGL if the demerger fails – which could lower its value – or for Accel Energy if the demerger is implemented
  • The AGL share price is trading flat with its previous close on Wednesday, shares in the company are swapping hands for $8.20

After a brilliant start to 2022, the AGL Energy Limited (ASX: AGL) share price is suffering this month as tech mogul Mike Cannon-Brookes steps up his campaign against the company’s demerger.

But there are still questions regarding the Atlassian Corporation (NASDAQ: TEAM) CEO’s plan for AGL beyond blocking the split.

A broker and AGL’s boss have reportedly flagged that Cannon-Brookes might pitch a third, “cheaper” takeover bid for the company in the future. They think the billionaire could throw a lower offer at AGL if the demerger fails or bid for Accel Energy if it succeeds.

At the time of writing, the AGL share price is $8.20, flat with its previous closing price. Though, that’s 5.5% lower than it was at the end of April.

For context, the S&P/ASX 200 Index (ASX: XJO) is 0.24% on Wednesday. It has fallen 5.3% so far this month.

Let’s take a look at why the billionaire might be gearing up to slap another offer on AGL.

Could AGL be the subject of a post-demerger vote takeover bid?

The AGL share price is falling on Wednesday. Its drop comes amid reports Cannon-Brookes’ attack on the company’s demerger could double as a means to lower its value ahead of a new takeover bid.

The demerger would see AGL Energy split into energy retailer AGL Australia and energy generator Accel Energy.

JP Morgan, as quoted by The Australian, notes the company’s new major shareholder could be looking to block the demerger – which might cause AGL’s value to drop ­– before posting a third takeover bid.

On the other hand, if the demerger is approved, Cannon-Brookes might be interested in bidding for Accel Energy.

The entity will hold AGL’s coal-fired power stations alongside its gas and wind assets and future pipeline.

“We fail to understand [Cannon-Brookes’ investment vehicle] Grok’s strategy that preventing the demerger will facilitate early closure of coal plants,” JP Morgan analyst Mark Busuttil was quoted by The Australian.

Alternatively, Grok could itself acquire Accel Energy post demerger to push forward with asset closures.

It is likely the entity sees value in retail and is looking to avoid a competitive process by preventing the demerger, and possibly making a cheaper acquisition.

JP Morgan analyst Mark Busuttil, quoted by The Australian

A third takeover attempt is also on the minds of Cannon-Brookes’ fellow shareholders, according to AGL CEO Graeme Hunt.

[Shareholders] just don’t quite understand what the endgame there is, unless he is trying to do something to reduce the value of the company in order to pursue what might have been his first strategy when he had a partner – to take control of the company on the cheap and to put the value of the energy transition in his pocket, not in that of our broader shareholder base.

Graeme Hunt, quoted in a separate piece from The Australian

Cannon-Brookes’ previous bids for AGL

The tech mogul has been chasing AGL for much of 2022.

Grok Ventures put forward a bid in partnership with Brookfield Asset Management offering $7.50 per AGL share in February. That was upped to $8.25 per share in March.

The AGL board rejected both offers as it believed the bids undervalued the company.

The pair aimed to see AGL – Australia’s largest carbon emitter – reach net zero by 2035.

AGL share price snapshot

Despite recent falls, the AGL share price is outperforming in 2022.

It has gained 29.8% since the start of this year. Comparatively, the ASX 200 has slipped 7% in 2022.

Though, the company’s stock is still 7% lower than it was this time last year. The ASX 200 has fallen just 0.8% in that time.

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 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.

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