A $9 billion offer for shareholders in AGL done and dusted in a few hours – and now shareholders in the struggling utility will have to hope management and the board made the right call to go with the plan to split the company into the good (renewables and retailing) and bad (coal fired power stations and infrastructure).
The quick rejection of the 10% or 75 cents a share higher offer for AGL from tech billionaire Mike Cannon-Brookes and international asset manager Brookfield saw the bidders walk away and by the time everyone was tucked up in bed on Sunday night, the bid was dead and AGL set for separation.
The $8.25 a share offer, up from $7.50 on a Sunday a couple of weeks ago, was rejected by the AGL board on Sunday and confirmed to the market first thing Monday.
That leaves the AGL share price stranded at Friday’s close of $7.43, and it eased to $7.30 at Monday’s close, down 1.75%.
The shares were trading at $6.17 in early January and once investors realise there are no other bidders, the shares could easily retrace to that level, especially with Australian thermal coal prices being dragged higher by record prices in export markets of more than $US400 a tonne and soaring prices for LNG – which will drag up Australian gas prices as renewables continue to put downward pressure on electricity prices.
Mr Cannon-Brookes, the co-founder of software developer Atlassian said in a tweet on Sunday it was with great sadness that the consortium was “putting our pens down”.
“This weekend, the board rejected our raised offer of $8.25 – 46 per cent more than the price of $5.55 about 90 days ago,” he said in a post on Twitter.
Mr Cannon-Brookes said the consortium’s proposal to spend between $10 billion and $20 billion in large-scale renewable energy and batteries to enable the early closures of AGL’s power stations that account for 8 per cent of Australia’s overall greenhouse gas emissions would have been the “world’s biggest decarbonisation project”.
But instead, the board was proceeding with its increasingly controversial plan to demerge its massive coal- and gas-fired power stations into a separate entity known as Accel Energy and continue burning coal until the mid-2040s, he said.
“This path is a terrible outcome for shareholders, taxpayers, customers, Australia and the planet we all share,” Mr Cannon-Brookes said.
AGL rejected the first offer telling investors it believed the offer “materially undervalues” the business and would not be in their best interests to approve.
The consortium’s initial cash offer, of $7.50 a share, had represented a 4.7% premium to the $7.19 closing price before the bid was announced.
Justifying the board’s rejection of the initial offer, AGL chief executive Graeme Hunt last month insisted a 4.7% premium was far too low, given takeover premiums often exceeded 30%.
On Monday, the same line was repeated by AGL chair, Peter Botten who said in a statement filed with the ASX early morning:
“The Revised Unsolicited Proposal continues to ignore the opportunity that AGL Energy shareholders have through our proposed demerger to realise potential future value.
“It also ignores the momentum we have recently seen in the business through our solid half year result, strong progress on the demerger, strong interest in our Energy Transition Investment Partnership and the improvements we are seeing in forward wholesale prices.
“The proposed demerger will be a catalyst for the potential realisation of shareholder value. It will create two industry leading companies with distinct value propositions. It will allow each business to be valued separately and more positively by the market on the basis of their own specific business fundamentals.”
That was self-interested tosh as it implies that AGL is a sound, prosperous company with a bright future, but its fossil fuel based generating fleet and associated assets have been why the shares have sunk from more than $27 in early 2017. These assets have been unable to compete on price or efficiency with the growing presence of renewables in the energy market.
That’s why AGL management and CEO Graham Hunt want to be shot of them into a standalone company which will underperform in the market (if anyone will finance it and insure its assets) with the retail, distribution and renewable assets in a new version of AGL.
AGL is now a gamble – not the renewables but the old fossil fuel side of the company. The big question is can it survive?
