In his latest appeal to shareholders to vote against AGL’s proposed demerger, Mike Cannon-Brookes has pointed to the results of the federal election, declaring that under a Labor Government, AGL’s plan is “not going to fly”.
AGL Energy is planning to split into two companies, AGL Australia and Accel Energy, by July 2022, which is dependent on a shareholder vote set to take place on 15 June.
Mr Cannons-Brookes has submitted multiple takeover bids in order to prevent the demerger, one in February and one in March, but both were rejected. He owns 11.28 per cent of AGL shares.
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, shows that AGL’s demerger plan “is 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.
It is likely that Federal Government policy will push AGL’s Loy Yang A power station to retirement by 2032, while its Bayswater power station will be redundant once its largest customer, the Tomago Aluminium Smelter, switches to renewable energy in 2030.
Greenpeace Australia Pacific senior campaigner, Glenn Walker, said that the results of the election mean that AGL should focus on planning a rapid shift to renewables.
“The political tide has turned dramatically for strong climate action,” Mr Walker said.
“Not only has the Australian public made their views clear, but the incoming Labor Government’s 2030 renewable target renders AGL’s proposed demerger a dead duck.
“It would leave AGL and Accel Energy shareholders with stranded assets, plummeting value, and a reputational nightmare. Investors who once owned shares in one of Australia’s oldest companies would be left carrying the can for one of Australia’s biggest corporate failures.
“AGL must remain whole, close coal by 2030, and invest heavily in large-scale renewables and technology to support householders to generate their own share of clean energy. This was true before a Labor victory and it is inevitable after one.”
AGL’s CEO, Graeme Hunt, recently claimed that it would be “impossible” to build 12-15GW of new renewables to replace coal power stations by 2030, but Labor’s policy involves the build-out of over 25GW of new large-scale renewable energy by 2030.
Mr Hunt said that the demerger enables a responsible acceleration to decarbonising Australia’s energy system.
“AGL shares the ambition for decisive action on climate, while ensuring affordable energy, and looks forward to working with the Albanese government to achieve this,” Mr Hunt told the Australian Financial Review.
“AGL Energy is committed to our clear demerger plan that is the best path for the company, for shareholders and for Australia’s orderly and responsible energy transition.”
Appealing to shareholders
Following his acquisition of 11.28 per cent of AGL Energy shares, Mike Cannon-Brookes delivered a letter to AGL shareholders, encouraging them to vote against the proposed demerger.
In May, Mr Cannon-Brookes bought up AGL shares through his family’s private investment group, Grok Ventures, in order to become the largest shareholder.
Now, Mr Cannon-Brookes is turning to other shareholders for support as the vote on the demerger approaches.
In the letter, Mr Cannon-Brookes said he raided shares because he saw potential for one of the nation’s oldest companies to shape Australia’s energy future while delivering shareholder value.
“We believe this is a deeply flawed plan that will deliver a terrible outcome for AGL shareholders, workers, customers, Australian taxpayers and the planet,” Mr Cannon-Brookes said to shareholders.
“We believe the best way we can realise the potential value of the company and create a brighter future is if we vote against the demerger and keep AGL together.”
“The Scheme Booklet released on 6 May 2022 confirms the Board’s lack of leadership and a strategy that misses one of Australia’s biggest economic opportunities, decarbonisation.
“Instead, shareholders are being asked to carry the burden of approximately $400 million to $500 million in demerger costs and take a back seat to Australia’s energy transition.
“The Independent Expert’s Report indicates that shareholders are likely to face lower dividends if the demerger proceeds. Shareholders are unlikely to receive any franking credits for their Accel Energy shares until June 2025.”
Mr Cannon-Brookes said that splitting AGL Energy into two companies will not deliver benefits to shareholders, despite what the Board has said.
“We are worried about Accel Energy’s cash flow profile based on the future profitability of its coal assets,” Mr Cannon-Brookes said in the letter.
“The Independent Expert’s Report did not validate the Board’s claim that coal-fired power stations owned by Accel Energy will continue to be profitable assets through to their current target closure dates, reinforcing our doubts regarding the company’s ongoing solvency.
“We do not believe that AGL Australia’s valuation will increase once it’s split, as it will still rely on Accel Energy and its coal generation assets over the next five years.
“The Independent Expert’s Report highlights the risk that Accel Energy may be valued at less than it is as part of AGL Energy, due to its heavy coal exposure.”
But AGL’s Chief Executive, Graeme Hunt, returned fire, slamming Cannon-Brookes’ commentary as “out-of-touch, undeliverable, and irresponsible nonsense”.
“Mike Cannon-Brookes’ lack of expertise and understanding when it comes to the Australian energy market, the reality facing energy customers, and the pressures of the real world, is betrayed by this out-of-touch proposal today,” he told the Herald and the Age.
“What about renters? What about marginalised Australians? What about people who simply don’t want to change their appliances and cars? Will they be forced to participate under this scheme?”
Mr Cannon-Brookes told shareholders that if the demerger is voted down, they will continue to hold shares in AGL Energy and he intends to work with the Board to listen to shareholders to set a more ambitious plan for the company.
“As the largest AGL Energy shareholder, we will be voting every share that we control at the relevant time against the demerger,” Mr Cannon-Brookes said.
“We are calling on other shareholders to do the same – vote against the demerger and keep AGL together.”
To read Mr Cannon-Brookes’ letter to the AGL shareholders, click here.
