Canadian investment giant Brookfield Asset Management is in direct talks with shareholders over its bid to acquire AGL Energy and shut its coal plants early, an offer the head of the Australian utility company dismissed as “opportunistic” and unworthy of engagement.
Brookfield on Wednesday declined to say whether it was considering increasing its A$5bn ($3.6bn) offer, which AGL rejected on Monday.
But people close to Brookfield and its deal partner, Australian tech billionaire Mike Cannon-Brookes, said the consortium had bypassed the AGL board and was now talking directly to the utility’s biggest investors, making good on promises made after the rebuff.
AGL chief executive Graeme Hunt told the Financial Times that Brookfield and Cannon-Brookes’ offer was “light years away” from a fair valuation of the company, representing only a 4.7 per cent premium on the share price at the time it was made.
Hunt said the consortium’s proposal lacked detail and the low starting price precluded “friendly engagement”.
“What was brought forward, starting with the value proposition, led the board very quickly to a position that said really this was something that was not worth engaging on,” Hunt said.
He added that shareholders had urged the AGL board to reject the offer because it was “not the kind of value that would cause them to consider supporting something like this”.
AGL owns three large coal plants, some gas and renewable assets and Australia’s joint-largest energy retail business with more than 4mn customers, according to its 2021 annual report. It is Australia’s biggest carbon emitter, producing approximately 8 per cent of the country’s total emissions, according to government figures.
Under Brookfield’s proposal, AGL’s three coal plants would be closed 12 years ahead of schedule, replaced by roughly 8 gigawatts of renewable generation capacity.
Hunt, who sits on AGL’s board, claimed Brookfield was seeking “to acquire Australia’s largest energy retailing business well below value”.
He added that AGL management was committed to decarbonising the business and had pledged to underwrite 3GW of new renewable generation.
AGL would consider bringing forward the closure of its coal plants if there was enough alternative generation to make it sustainable, Hunt said. He rejected the consortium’s claim that AGL could not raise enough money on public markets to fund investment in renewables.
Nearly 60 per cent of Australia’s electricity is generated using coal. But a rapid rollout of cheap wind and solar over the past decade has put coal generators under extreme cost pressure, forcing the planned early closure of multiple plants.
AGL’s chief operating officer Markus Brokhof said the company’s coal plants were still profitable and rejected claims that the utility had mismanaged the energy transition.
He said Brookfield’s proposal, which included A$20bn investment in renewables and storage, lacked substance. “Just shooting out one investment figure doesn’t mean you have a strategy for a company. There is nothing. It’s nothing,” he said.
Brokhof said the energy transition would be constrained by other factors, in particular grid capacity.
Hunt defended AGL’s plan to split the group in two, creating a retailer and a separate coal and renewables generator. He said the “integrated model” of owning both generation and retail businesses no longer made sense in a world of less centralised generation.
UBS analyst Tom Allen has given AGL a 12-month price share price target of A$7.05 — well below Brookfield’s A$7.50 offer — and warned the bid could derail the company’s demerger plans by increasing the risk that shareholders would vote against it.
AGL’s share price closed 0.52 per cent lower at A$7.65 on Wednesday in Sydney.
Brookfield targets shareholders after AGL board refuses to engage with bid
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