The board of AGL Energy Limited may have rejected the $7.50, $8 billion a share cash offer from Sydney tech billionaire Mike Cannon-Brookes and Canadian infrastructure investors, Brookfield, but Monday’s market reaction reckons a deal will be done around $8 a share and soon.
The shares shot up to close up 10.6% at $7.92 on Monday – no heady $9 or $10 a share prices as hedge funds and other punters piled into the stock. The top for the day was an optimistic $8.09.
More than 16.7 million shares were traded – that’s a fraction of the 60 million traded last November in a single day. That’s a good sign of the wariness there is in the market about this deal.
AGL’s board described the offer as being “an unsolicited proposal” which “materially undervalues the company on a change of control basis and is not in the best interests of AGL Energy shareholders.”
“AGL Energy shareholders do not need to take any action in response to the Unsolicited Proposal,” AGL said.
“The Unsolicited Proposal is a cash proposal, with an option for AGL Energy shareholders to elect a scrip alternative in the Brookfield Consortium’s acquiring vehicle (subject to a maximum participation cap of 20% AGL Energy shareholder ownership in the acquiring vehicle). The Unsolicited Proposal provided limited other information regarding the structure of the acquiring vehicle and the scrip alternative.
“The Unsolicited Proposal is also subject to a number of other conditions and assumptions, including due diligence, and approvals from the Australian Competition and Consumer Commission (ACCC) and Foreign Investment Review Board (FIRB).
“On the basis of the information presented, the AGL Energy Board has determined that the Unsolicited Proposal materially undervalues the company on a change of control basis and is not in the best interests of AGL Energy shareholders.
“The AGL Energy Board remains committed to progressing the proposed demerger of AGL Energy to establish two separately listed businesses, AGL Australia and Accel Energy, and considers the proposed demerger will deliver better value for AGL Energy shareholders.
AGL Energy Chairman Peter Botten said, “The proposal does not offer an adequate premium for a change of control and is not in the best interests of AGL Energy shareholders.
“Under the Unsolicited Proposal the Board believes AGL Energy shareholders would be forgoing the opportunity to realise potential future value via AGL Energy’s proposed demerger as both proposed organisations pursue decisive action on decarbonisation,” he said.
The rejected $7.50 a share might have been a small, less than 5% premium to Friday’s last sale of $7.16, but it was a 20% premium to the average price for the past 3 months which is probably a better comparison.
Some smart analysts reckon talk of control premiums is irrelevant in AGL’s current structure and financial position.
The decision for shareholders is whether the combination of AGL Australia (the good bits, renewables and customers) and Accel, the vehicle containing the coal fired plants, will create or destroy value relative to AGL’s current value.
That value has collapsed since April 2017 when the shares traded around $27.70. – that was almost $20 more than they are worth at Monday’s close. Loyal shareholders have felt considerable pain.
The old power station company, Accel could be worth nothing because it will struggle to get finance and insurance from a financial sector that has gone right off fossil fuels.
At the moment it looks like having no value because the power stations are going to be loss-makers and the new company will face a billion dollar plus cost to clean up the old station sites and rehabilitate the land and associated facilities.
