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Australia’s AGL Energy rejects $3.5 billion takeover offer

Decision to split favored over plan backed by billionaire Cannon-Brookes

Australia's AGL Energy rejects $3.5 billion takeover offer

AGL Energy has rejected a takeover bid by tech billionaire Mike Cannon-Brookes and Canadian asset management giant Brookfield, saying the preliminary offer “materially undervalues the company”.

Brookfield and Cannon-Brookes’ Grok Ventures made the extraordinary offer to take over Australia’s most polluting company on Saturday, with a goal to shut its coal power plants earlier than planned.

In a statement to the Australian Stock Exchange, AGL said it had rejected the unsolicited preliminary offer of $7.50 a share, which offered a 4.7% premium on Friday’s closing price of $7.16. Including AGL’s debt, the offer was in the range of $8bn. The company said it was not in the best interest of shareholders.

Speaking on Monday, Cannon-Brookes said the consortium would continue to work on the potential takeover, which would involve Brookfield and Grok Ventures acquiring AGL’s power generation and energy retail divisions, which include coal, gas and renewable energy generation assets.

If successful, the new owners would aim to bring forward AGL’s exit from coal-fired power. It would also halt a planned demerger that would have broken off the company’s fossil fuel assets into a separate entity, to be called Accel Energy.

AGL chairman Peter Botten said the bid did not offer an adequate premium for a change of control of the company. “Under the unsolicited proposal, the board believes AGL Energy shareholders would be forgoing the opportunity to realise potential future value via AGL Energy’s proposed demerger, as both proposed organisations pursue decisive action on decarbonisation.”

Cannon-Brookes said the consortium was confident it could close and replace AGL’s coal plants – Bayswater in New South Wales and Loy Yang A in Victoria – by 2030, and take the company to net zero emissions by 2035. “We have $20bn to fund that transition,” he told the ABC’s RN Breakfast.

He said it should lead to lower bills for consumers, create more jobs and substantially reduce greenhouse gas emissions. AGL is responsible for more than 8% of Australia’s annual emissions – more in its own right than Sweden, Ireland or New Zealand, he said.

“On a global scale this is a massive decarbonisation effort. The economics stacks up, the science stacks up. What we require is just the gumption to go it and actually make it happen, and that’s what we’re trying to do,” Cannon-Brookes said.

It promised a transition plan consistent with limiting global heating to 1.5C that would require about $20bn of capital as about 7 gigawatts of fossil fuel capacity was replaced with at least 8GW of clean energy and storage.

“It is intended AGL will be net zero by 2035,” the statement said. “The consortium is committed to working with all stakeholders and regulators to ensure the transition is achievable. Serving the company’s customers will remain the primary focus.”

Brookfield managing partner Stewart Upson said the consortium had a “defined plan to significantly rationalise” AGL’s carbon-intensive coal plants once they were replaced through a “large-scale renewable build-out, supported by an identified project pipeline”.

“To have a material impact on net zero transition, investors need to do more than simply avoid carbon-intensive businesses and we need to be willing to tackle emissions head on,” he said.

The owners of Australia’s coal-fired generators are under increasing pressure, both economic due to the rise of cheap solar energy in the national grid, and from activist shareholders to act in line with the Paris climate agreement.

Earlier this month, AGL brought forward the planned closure date of the Bayswater black coal plant in NSW to no later than 2033, and Loy Yang A in the Latrobe Valley to 2045. On Thursday, Origin Energy gave notice that the country’s biggest coal-fired power plant, Eraring, could shut seven years earlier than scheduled – in 2025, rather than 2032.

Asked about the bid during a visit to Tasmania on Monday, Scott Morrison declared the government did not want ageing coal plants to close early. “We need to ensure that our coal-fired generation of electricity runs to its life, because if it doesn’t, electricity prices go up,” the prime minister said.

While cheaper renewable energy generation is one of the factors driving lower power prices, the prime minister said his government was “very committed to sweating those [coal] assets” to ensure reliable electricity supply at affordable prices.

The energy and emissions reduction minister, Angus Taylor, said energy companies were providers of an essential service and had a responsibility to put consumers first. He said driving out “dispatchable” capacity – meaning coal plants – was a significant risk to electricity consumers “both in terms of reliability of the grid and electricity price impacts”.

AGL’s share price rose about 12% on Monday morning, topping $8 for the first time since mid-July 2021.

The prospect of AGL’s coal plants closing as soon as 2035 is broadly in line with scenarios published by the Australian Energy Market Operator in a draft integrated system plan – a blueprint for the future – published in December. Under its “step change” scenario, brown-coal plants in Victoria would shut by the early 2030s and the final black coal plants by the early 2040s.

Speaking alongside Morrison, the treasurer Josh Frydenberg dead-batted a question about whether the proposal could be blocked by the Foreign Investment Review Board. He noted the bid had not yet been approved by AGL shareholders. Brookfield last November secured approval from the foreign investment review board for the $17.8bn takeover of transmission group AusNet Services.

Given AGL’s role as a major energy generator and retailer – before the planned demerger – an agreed takeover may also attract attention from the Australian Competition and Consumer Commission.

AGL’s demerger is being advised by Macquarie Bank, while the Brookfield-Grok duo is being advised by Citi.

Cannon-Brookes, a renewable energy investor and vocal advocate for greater action on the climate crisis, previously expressed an interest in backing clean energy assets to replace AGL’s ageing Liddell coal plant, which is due to shut next year.

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