Cannon-Brookes steps in to stop AGL demerger, fast-track coal exit

Australian software billionaire Mike Cannon-Brookes has made a dramatic $660 million market raid on Australia’s biggest coal generator and polluter AGL, vowing to oppose its proposed demerger and fast track its exit from coal.

Grok Ventures, the private investment firm of Cannon-Brookes and his wife Annie, hired brokers to stand in the market late Monday to snap up an 11.28 per cent voting stake, which may be enough to thwart the de-merger vote at the upcoming shareholder meeting in June.

Cannon-Brookes said in a letter to the AGL board that Grok was now the biggest shareholder in AGL  which has had few institutional backers because of its massive fossil fuel exposure, and declared there was a “better future” for the company.

“We have purchased this substantial interest in the company because we fundamentally believe there can be a better future for AGL,” he wrote in the letter.

“A future that delivers cheap, clean and reliable energy for customers. A future that accelerates the transition to net-zero, and a future that creates opportunities for AGL and value for its shareholders along the way.

“We firmly believe the proposed demerger is a flawed plan that will fail to achieve these goals. As a result, we intend to vote every AGL share we control at the relevant time against the demerger, and will actively encourage all AGL shareholders to do the same.

“In our view, the proposed demerger risks a terrible outcome for AGL shareholders, AGL customers, Australian taxpayers and Australia.”

This is Cannon-Brookes’ second crack at AGL, after he and Canadian asset management giant Brookfield lobbed an $8 billion bid for the company earlier this year.

The joint bidders “downed pens” and walked away from the project after AGL rejected a higher offer.

It was clear at the time, however, that the future of any bid would depend on the shareholder meeting that will vote on the demerger plans. And because of the absence of many professional funds managers, the vote was seen as hard to call.

This time round Grok is working on its own, but the strategy – at least for the moment – is to block rather than to take control. It has launched a new website Keep It Together Australia to push the cause among small shareholders.

The market raid comes just six weeks before the scheduled shareholder vote on June 15, and just a couple of weeks before the release of the voluminous shareholder document. It tilts the balance towards a rejection.

And, of course, it comes in the middle of a federal election campaign where the future coal is a big issue in some regional seats and inner-city electorates.

Cannon-Brookes and Brookfield had been coy about the proposed timing for the coal closures, and their replacement with renewables and storage, but Cannon-Brookes indicated this week he was aiming for 2030.

In an interview broadcast on Nine’s 60 Minutes program on Sunday, Cannon-Brookes said AGL’s emissions alone was more than many countries, more than every car on the road in Australia, and every airplane in its skies.

“We can change it by 2030 in a meaningful, meaningful, meaningful way. If we can do that and show its economic show that there is money to be made in doing it, then around the globe, we’ll have 50 Copycat projects and that will be fantastic,” he said.

In his letter to AGL, Cannon-Brookes cited three reasons, saying the creation of a new company Accel would create two weaker entities that were more costly to run, and would be worth less than the current merged value.

He said Accel, which will hold the coal assets, as well as trying to reshape them into green industrial hubs, would be would not be a viable stand alone asset and was at significant risk of becoming a stranded asset given its meaningful coal exposure.

“Accel Energy will have substantial liabilities that impact its credit worthiness and impede its ability to raise the capital required to fund the replacement of its coal-fired power generation fleet and meet its remediation liabilities,” he said.

Finally, he said the demerger is “globally irresponsible”, and will entrench the company’s position as the biggest single contributor to carbon emissions in Australia.

“If the demerger proceeds, we believe AGL customers and Australian taxpayers will inevitably bear the consequences, as Accel Energy’s ageing coal fleet could lead to increased instances of plant failure and high electricity price events,” he said.

“We believe there are better and more value accretive alternatives if the company is kept together, driving new investment to help AGL transition its coal assets. We welcome the opportunity to constructively discuss this with the Board, at any point in the process.

The market raid also came after AGL on Monday revealed it was facing $73 million from the closure of one of the big 530MW generation units at Loy Yang A in Victoria, which it wants to keep running until the 2040s.

This plan comes despite universal demands by climate scientists that the world should reach zero emissions by around 2035 if it is to have any chance to cap global warming below 2°C.

Update: In a late statement, AGL said it is committed to delivering the proposed demerger, which it said “will ensure the value created through Australia’s energy transition stays with our shareholders.”

It said the demerger is on track to be completed by the end of next month. “AGL hasn’t been contacted by Grok Ventures,” it said.

Further update: On Tuesday, AGL acknowledged the Cannon-Brookes stake but said it will plough on with its demerger plans, and announced a new partner for its planned renewables an storage fund.

See also: Energy Insiders Podcast: Mike Cannon-Brookes and closing coal