It should be an object lesson to company boards and managements.
First off yesterday Just Group revealed plans for a share buyback and the shares firmed more than 10 percent, despite an indifferent result.
Then AGL Energy finally ended its ambitious and faintly silly attempts to engineer a ‘nil premium, merger of equals’ with rival utility, Origin Energy.
That sent Origin shares tumbling and AGL shares rising, by 60c at one stage as investors showed they are no fools and could recognise just which company would have been damaged had the deal gone ahead.
AGK shares ended yesterday at $15.72 after touching a high of $15.91 while Origin shares tumbled 79c, or around 8 per cent, to a day’s low of $8.51 before recovering to be 65c lower at $8.65. The price of another utility takeover target, Alinta, which had a brief run earlier in the week on speculation of a bid, eased a further 17c yesterday to $14.38.
The Managing Director of AGL Energy, Paul Anthony, said in London overnight that AGL would not be pursuing its merger of equals proposal with Origin.
“Speaking at the Citigroup Investment Conference, Mr Anthony said: “AGL put a very attractive merger of equals proposal to Origin based on an exchange ratio which would have had the potential to deliver a very significant increase in earnings per share for Origin’s Shareholders, while at the same time delivering significant benefits to AGL’s Shareholders.
“We are firmly of the view that realisation of the full value for both AGL and Origin Shareholders is only possible if a transaction can be achieved on a consensual basis.
“Origin has rejected AGL’s merger of equals proposal and refused to engage on the transaction. Accordingly, we have decided that we will not be pursuing our proposal.
“We also note that a merger ratio based on current market prices would not be attractive to AGL’s Shareholders,” Mr Anthony concluded.”
That is putting the best possible spin on a deal which has been dead in the water for a while.
AGL Energy confirmed what many had been saying for a couple of weeks: that the idea of a merger of equals was impractical and if AGK wanted a deal it would have to make a costly run at Origin, thereby chewing up a lot of the one billion dollars or more in so-called synergies that AGL CEO, Paul Anthony claimed existed in a nil-premium deal.
That he chose to walk awayin London and not in Australia (Origin CEO Grant King was at the same conference) says a lot about Mr Anthony’s confidence about the local market as a place to make major announcements.
Analysts who were at the Citigroup conference noted that Origin dismissed the idea in just one slide in their presentation while Mr Anthony devoted several slides to discussing the idea, which then hadn’t obviously been killed off.
The key phrase from Mr Anthony’s statement was “A merger ratio based on current market prices also would not be attractive’ to AGL shareholders. Judging by the sharemarket reaction that’s quite true.
AGL has around 3.6 million customers, while Origin serves about two million customers, in Australia, New Zealand and the Pacific. The deal, had it gone ahead, would have seem at least a million of that 5.6 million total customer based sold off, with associated assets and contracts.
Just how customers would have benefited remains to be seen.
The reaction of investors in AGL Energy is also a big message to the board and management not to try for a hostile bid, or an agreed bid with a control premium big enough to win the support of Origin.
