Tech billionaire Mike Cannon-Brookes and Canadian funds giant Brookfield are planning to walk away from their landmark bid for AGL Energy, after the board of the Australia’s biggest polluter and biggest coal generation company rejected a raised offer.
Cannon-Brookes’ Grok Ventures and Brookfield – or the “Brooks brothers” as they have been tagged – lifted their combined offer of $7.50 a share to $8.25 a share late on Friday in a bid to win over the AGL board, but the latest bid has been rejected after a meeting over the weekend, sources said.
AGL confirmed on Monday morning that it had rejected the increased offer, and insisted it will continue with its much criticised plan to split its company into two, and run the coal assets for up to another two decades or more. Its shares fell to $7.35, more than 10 per cent below the offer price.
Cannon-Brookes, in a series of tweets late on Sunday night, confirmed that Brookfield and his Grok Ventures are withdrawing from the process – or at least “putting their pens down” – because of AGL’s rejection, a situation he described as a “terrible outcome”.
“The Brookfield-Grok consortium looking to take private & transform AGL is putting our pens down – with great sadness,” Cannon-Brookes tweeted.
“This weekend, the board rejected our raised offer of $8.25. 46% more than the price of $5.55 about 90 days ago.
“Our path was the world’s biggest decarbonisation project. From Aus. The board are proceeding with their demerger path. This path is a terrible outcome for shareholders, taxpayers, customers, Australia and the planet we all share.”
Still, the language is interesting. The moves have been described as “withdrawal”, and “pens down”, which does suggest that those pens could be picked back up again should AGL choose to engage with the bidders, under pressure from its shareholders.
The bid was first launched a fortnight ago, with Cannon-Brookes and Brookfield outlining a plan to fast-track the closure of AGL’s two remaining coal fired generators, subject to their being enough new renewable and storage capacity built in their place.
The audacious offer, attacking the fossil fuel industry from the inside out, was the result of a “meeting of the minds” between climate advocate Cannon-Brookes and Mark Carney, the former Bank of England chief who now heads a new transition fund run by Brookfield.
They decided that buying one of the largest fossil fuel companies was the best way to ensure the exit of fossil fuels from the world’s electricity grid could be made in accordance with the 1.5°C climate targets, and they insisted it would be cheaper, faster and cleaner to do it from the inside out.
The withdrawal of the trillion-dollar Brookfield and one of Australia’s richest people, with a clear vision for the future, is likely to leave a bitter taste in the mouth of AGL investors, who may be frustrated by the utility giant’s refusal to engage with the bidding companies.
AGL has insisted that the timetable for coal closures put out by Cannon-Brookes and Brookfield – by 2035 at the latest – is not realistic.
This is despite the fact that the Australian Energy Market Operator predicts that all brown coal generators – including AGL’s Loy Yang A, are likely to close by 2032 in the new “step change” scenario of its Integrated System Plan, the planning blueprint that has been ovewhelmingly endorsed by the bulk of the energy industry.
In its statement on Monday morning, chairman Peter Botten, said the bid continued to ignore the opportunities of the demerger, and was pitched only 15 per cent above trading prices before the first offer was announced.
“It also ignores the momentum we have recently seen in the business through our solid half year result, strong progress on the demerger, strong interest in our Energy Transition Investment Partnership and the improvements we are seeing in forward wholesale prices,” he said.
“The proposed demerger will be a catalyst for the potential realisation of shareholder value. It will create two industry leading companies with distinct value propositions. It will allow each business to be valued separately and more positively by the market on the basis of their own specific business fundamentals.”
The AGL bid was pitched just days after Origin Energy flagged the fast-tracked closure of the biggest coal generator in the country, the 2.88GW Eraring plant in NSW, subject to agreement from unions and workers.
The reason given was that Eraring can no longer compete with the influx of renewables and technologies such as battery storage and demand management.
The industry thinks its unlikely that coal generators will be able to either, particularly given that the biggest customers, such as the massive smelters in Victoria, NSW and Queensland, have all signalled they want to switch to renewables by the end of this decade.