Power company’s demerger to be blocked

Atlassian co-founder Mike Cannon-Brookes has sought to block demerger plans by AGL Energy (ASX: AGL) by building a significant stake in the company.

An entity controlled by the billionaire, Galipea Partnership, gained control of 11.28% of AGL through derivatives trades after the ASX closed on 2 May. Cannon-Brookes plans to use this holding, and an earlier holding acquired by his investment company Grok Ventures, to prevent the demerger. The demerger proposal will require 75% approval from shareholders.

In a letter to shareholders, distributed by AGL on 3 May, Cannon-Brookes described the demerger plan as “globally irresponsible” and said it “risks a terrible outcome for AGL shareholders, AGL customers, Australian taxpayers and Australia”.

Cannon-Brookes said he would vote his shareholding against the demerger plan and encouraged other shareholders to do the same. He repeated this assertion interviewed on ABC radio on the morning of 3 May.   

The Galipea Partnership purchase makes Cannon-Brookes the largest shareholder in AGL which is Australia’s largest carbon emitter.

In the letter to shareholders, Cannon-Brookes said: “We have purchased this substantial interest in the company because we fundamentally believe there can be a better future for AGL, a future that delivers cheap, clean and reliable energy for customers; a future that accelerates the transition to net zero, and a future that creates opportunities for AGL and value for its shareholders along the way.”

According to Cannon-Brookes, keeping AGL as one company rather than splitting it into two, as the board plans, would ensure it was more resilient and would be able to reduce emissions faster.

Galipea Partnership’s interest was acquired in a separate transactions at $8.46 and $8.62 a share, higher than the $8.25-a-share Canadian infrastructure firm Brookfield Asset Management and Grok Ventures proposed in a revised preliminary non-binding indication of interest which was rejected by the AGL board in March.

In a letter to shareholders responding to the Galipea Partnership acquisition, AGL chairman Peter Botten said the company remained committed to delivering the demerger which the board considered was in the best interests of shareholders as it would create the potential to maximise growth in the value of shares by giving each of the two companies freedom to pursue individual strategies.

The demerger is planned to create:

• AGL Australia, as a leading multi-service energy retailer, supported by a strong brand, extensive experience in energy retail and backed by a portfolio of firming, storage and renewable assets.
   
• Accel Energy, as Australia’s largest electricity generator, providing secure, low-cost energy whilst driving the energy transition but repurposing its existing generation sites into low emission industrial energy hubs and progressing a pipeline of renewable energy projects.

A scheme of arrangement meeting, at which shareholders will vote on the proposal, is set down for 15 June.   

An initial substantial holder notice lodged with the ASX on 2 May, on behalf of Galipea Partnership, stated the partnership’s holding comprised:

• a relevant interest in 56,779,867 fully paid ordinary shares in AGL representing 8.44 of the shares on issue acquired by Galipea through a loan and equity collar transaction with JPM Morgan Securities; and
   
• an economic interest in respect of a further 19,103,523 shares representing 2.84% of the shares on issue through a cash settled total return swap with JPM.

Also on 2 May, AGL issued an earnings guidance update for the current financial year which reduced underlying profit after tax by at least $40 million. The downgrade resulted from a generator outage at the Loy Yang A, Victoria, coal-fired power station on 15 April.

The damage to the unit, first reported on 20 April, is expected to be fixed by the beginning of August. The company currently estimates the financial impact of the outage will be $73 million pre-tax and $50 million after tax. This impact will be split between the current and 2023 financial years; expected to be $60 million pre-tax and $41 million after tax in the current financial year and $13 million pre-tax and $9 million after tax in the 2023 financial year. The company noted that the financial impact of the outage was not recoverable on insurance.

On 3 May, AGL announced that Global Infrastructure Partners would hold 49% of its planned Energy Transition Investment Partnership (ETIP).

AGL said it had designed ETIP as an innovative investment vehicle for Accel Energy to develop, own and manage initially approximately 2.7GW of quality renewables and low carbon firming assets.

These foundation projects would support Accel in maintaining its position as one of the largest operators and off-takers of renewable energy in Australia and would drive Australia’s energy transition by developing new renewable and low-carbon firming assets. It was also intended that additional projects and capacity would be added to the ETIP pipeline over time, AGL said.

AGL chief executive Graeme Hunt said strong interest in ETIP had been shown by a number of leading global infrastructure investors and AGL was excited to have been able to select Global Infrastructure Partners as its partner.

“The establishment of ETIP will support Accel in funding low-cost developments whilst providing Global Infrastructure Partners exclusive access to a portfolio of investments,” he said. “If all the foundation projects in ETIP were to proceed, it would represent an investment of approximately $4.7 billion into the future of energy in Australia.”

AGL anticipates that the first two projects to be developed by ETIP will be AGL’s proposed wind farm at Bowmans Creek in NSW (up to 450MW) and the Loy Yang battery in Victoria (200MW).

Image: The Loy Yang power station in Victoria.