AGL Energy has withdrawn its proposal to demerge into two businesses, resulting in the resignations of AGL Chairman, Peter Botten, and CEO, Graeme Hunt.
AGL Energy deemed that the Demerger Proposal would not receive the necessary 75 per cent stakeholder approval at the scheduled 15 June vote to gain approval, despite the Board maintaining that it would be in the best interest of its shareholders.
Mr Botten said, “While the Board believed the demerger proposal offered the best way forward for AGL Energy and its shareholders, we have made the decision to withdraw it.
“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.”
The AGL Energy Board has also actioned the following executive management changes:
- Chairman Peter Botten will resign from the Board upon the appointment of a replacement independent Chairperson
- Graeme Hunt will step down as CEO and Managing Director, with Mr Hunt to act in this role until a new CEO and Managing Director is appointed
- Jacqueline Hey has resigned as a Non-Executive Director effective 30 May 2022
- Diane Smith-Gander will resign from the Board following the release of AGL’s FY22 full-year results in August 2022
Atlassian founder Mike Cannon-Brookes, AGL’s biggest shareholder, strongly opposed the demerger and publicly campaigned for it to be called off. Responding to the announcement, Mr Cannon-Brookes tweeted that it was “a huge day for Australia”.
While the latest developments have claimed four high-profile scalps, industry sources are reporting that Christine Corbett, who was to be CEO and MD of the demerged AGL Australia, will continue to play a role in the organisation.
It is believed that the recent Federal Election result put more pressure on the Board of AGL, and led them to believe that the demerger vote, which was scheduled for June 15, would not end in its favour.
Mr Cannons-Brookes told the Australian Financial Review that Labor’s federal election win, alongside increased seats for the Greens and Climate 200-backed teal independent candidates, showed that AGL’s demerger plan was “not going to fly.”
“Australia has its sights set on a brighter future and the opportunities that decarbonisation will bring,” Mr Cannon-Brookes said.
“A demerger plan that is not aligned to Paris targets is not going to fly.”
Labor’s Powering Australia policy aims to have 80 per cent of the energy mix made up of renewables by 2030.
The review of AGL’s strategic direction will be overseen by a Board sub-committee co-chaired by Vanessa Sullivan and Graham Cockroft utilising internal and external resources.
A spokesperson from Grok Ventures said, “Grok Ventures welcomes 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.”
The spokesperson said that Grok Ventures had put in meeting requests with Ms Sullivan and Mr Cockroft to ensure the future direction of the company included a Paris-aligned plan, taking advantage of the electrification transition and the renewable generation opportunity.
“We will be seeking assurance from the co-chairs that the strategic review is not code for selling off AGL’s assets piece by piece,” the spokesperson said.
“Our position is steadfast that AGL needs to be kept together as an integrated company. We believe that is in the best interests of shareholders, customers, Australian taxpayers and the planet.
“Grok will be seeking Board representation. We want to ensure that AGL has the talent, capital, capability and oversight that is required to embrace the opportunity presented by decarbonisation.”
“Bloodbath years in the making”
The Australasian Centre for Corporate Responsibility (ACCR) commented on the withdrawal of the demerger proposal.
Harriet Kater, Climate Lead (Australia) at the ACCR, said, “The bloodbath in the boardroom of AGL was years in the making and well overdue.
“Well before the demerger was announced in March 2021, institutional investors expressed their frustrations with the lack of leadership at AGL.
“With the abandonment of the demerger, the departure of four directors is a welcome step towards a brighter future for AGL shareholders.
“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.
“The current board of AGL wasted 18 months on the demerger, and five years of underinvestment in renewable energy. New leadership must be brought in to take the company forward.
“AGL is in desperate need of directors that have direct experience in developing clean energy at scale.
“By failing to set Paris-aligned targets for the proposed demerged entities, the board of AGL ignored a fundamental demand of a majority of shareholders less than a year ago, and they’ve now paid the price.”
A good outcome for shareholders
Professor Ariel Liebman, Director, Monash Energy Institute, Faculty of Information Technology, said that abandoning demerger plans would have positive outcomes.
“The abandonment of the demerger is a great outcome not only for AGL shareholders, as it will preserve shareholder value, but also for energy consumers and Australia’s transition to renewable energy,” Professor Liebman said.
“This bodes well for consumers as it will accelerate the move away from ageing and unreliable fossil assets that are increasingly resulting in higher wholesale prices, as seen in the last few weeks. Failing coal-powered generators owned and managed by energy companies are one of the drivers of recent electricity price hikes, as the price of electricity generation increases due to the reduction in electricity supply while such fossil stations are being repaired.
“If the demerger had gone ahead the so-called ‘New AGL’ (AGL Australia) would have been unable to invest in large renewable energy generation projects and conversely the stand alone and mostly generation-heavy entity, Accel Energy, would have had an incentive to keep their coal and gas generators operational to maximise shareholder value.
“Additionally, it would have been difficult for Accel Energy to raise investment for renewable energy projects from brand sensitive investors who would see their profile as a fossil-heavy generator as a public relations risk.
“AGL Energy, in its current state, can manage an accelerated retirement of its coal and gas fleet in a much more orderly manner. This is made possible due to a long-lived asset-based balance sheet allowing it to raise capital easily to build large-scale wind and solar generation and storage.
“The company is currently best-placed for investment in the transition to renewable energy sources from an investment and risk-management perspective.”
The Board will immediately commence a search process to identify potential new Non-Executive Directors of AGL Energy.
More to come.
