AGL Energy has ditched its plan to split into separate generator and retailer arms, capitulating to the billionaire climate activist Mike Cannon-Brookes’ efforts to foil the move.
In a statement to the Australian Securities Exchange on Monday morning, AGL said it was withdrawing the plan, despite the board believing the demerger was the “best way forward”. It was clear that the proposal would not secure the necessary 75% of shareholders at a scheduled 15 June vote to win approval.
In the wake of the decision, AGL said its chairman, Peter Botten, would resign from the company’s board upon the appointment of an independent replacement. Graeme Hunt will also exit as chief executive and managing director once a replacement has been appointed. Two other board members, Jacqueline Hey and Diane Smith-Gander, will depart, with Hey leaving on Monday and Smith-Gander to resign in August.
“The board will now undertake a review of AGL’s strategic direction, change the composition of the board and management, and determine the best way to deliver long-term shareholder value creation in the context of Australia’s energy transition,” Botten said.
That review would consider how AGL can create shareholder value “in an environment where pressure on decarbonisation and energy affordability is accelerating”, the company said. It would also aim to find use for “the extensive analytical work conducted in preparation for the demerger, and prepare for “ any new approaches from third parties regarding alternative transactions”.
AGL would also seek “further consultation with a broad range of stakeholders” including Grok Ventures, regulators, governments and communities.
Wow. A huge day for Australia 💚💛
— Mike Cannon-Brookes 👨🏼💻🧢🇦🇺 (@mcannonbrookes) May 29, 2022
Had to sit down & take it in. This live shot couldn’t be a better metaphor for a better, greener path ahead 🌱
We embrace the opportunities of decarbonisation with Aussie courage, tenacity & creativity.
Lots of work but we CAN do this 👊🏻 pic.twitter.com/mSCQl554C0
Grok ventures welcomed AGL’s decision, calling it “the sensible decision by AGL to abandon its value destructive demerger plan and renew its board”.
“AGL’s retail and institutional shareholders have sent an emphatic message to the Board and management of AGL that the company needs to be kept together to take advantage of the economic opportunity presented by decarbonisation,” it said in a statement released a short time ago.
“As AGL’s largest shareholder, we have requested a meeting with Vanessa Sullivan and Graham Cockroft who are co-chairing the ‘strategic review’.”
Grok would be keen that the country’s biggest electricity generator remains intact, and for the review not to result in the company’s assets being hived off “piece by piece”.
The 15 June vote was to determine whether AGL spun off its generation arm into a new company, Accel Energy, and a retailing arm, AGL Australia. The board said it expected a majority of shareholders would have backed the move but not enough to meet the three-quarters threshold required.
Cannon-Brookes shocked the company this month when he announced he had bought an 11.28% share, making him the biggest single shareholder. He vowed to block the demerger, saying it would destroy shareholder value as well as delay the closure of AGL’s remaining coal-fired power plants.
AGL itself has said the demerger would carry big costs, including $260m up front.
Last week Cannon-Brookes said he wanted two seats on the board.
Other investors, including the superannuation fund Hesta, which owned about 0.36%, have also said they would oppose the demerger.
Earlier this year Cannon-Brookes joined the Canadian asset manager Brookfield in a bid to take AGL private at $8.25 a share but was rebuffed. The stock ended the day down 1.7% or 15 cents, to $8.72, while the overall market rose about 1.5%.
The contest over the future of the 180-year-old company comes as wholesale prices surge to record highs of more than $300 a megawatt-hour in parts of the national electricity market that serve Australia’s eastern states. Rising costs for gas and outages at coal-fired power stations are the main factors pushing prices higher.
Crazy electricity price graph number 563:
— Dylan McConnell (@dylanjmcconnell) May 27, 2022
Q3 prices for NSW and QLD closed the week above *$300/MWh*
(..which is above both the cap payout price and also the "administered price cap", if the cumulative price threshold is reached)
🤯🤯🤯🤯 pic.twitter.com/Sjd1xtwnuQ
The higher wholesale prices are already affecting costs to households and businesses, with the Australian Energy Regulator last week lifting the standard market offer that serves as a benchmark in NSW, SA and south-east Queensland by 18%.
AGL operates three coal-fired power plants in New South Wales and Victoria. The Liddell power station in the Hunter has already closed one of its four units and will close the other three by next April.
In February AGL brought forward the closure date of the other two plants – Bayswater in the Hunter and Loy Yang A in Victoria – by several years. Cannon-Brookes argues that the termination needs to come much sooner and that an intact company would be better equipped to make the transition to a renewable energy and storage giant, helping to lower Australia’s greenhouse emissions significantly in the process.
Harriet Kater, a spokesperson for the Australasian Centre for Corporate Responsibility, said: “The bloodbath in the boardroom of AGL today was years in the making and well overdue …
“The longest-serving members of the board, particularly Hunt and Botten, have overseen the destruction of an enormous amount of shareholder value, and millions of dollars wasted on a now failed demerger.
“The proposed strategic review must have at its heart alignment with the Paris agreement, and with that the accelerated transition out of coal-fired power generation.”
She added that the current board had wasted 18 months on the demerger and five years of underinvestment in renewable energy.
