On Monday morning, Australia’s biggest domestic contributor to climate change yielded to pressure and announced its determination to withdraw the proposal to separate AGL Energy into AGL Australia and Accel Energy via a demerger.
As a result, chairman Peter Botten and chief executive Graeme Hunt are both due to step down as soon as the company finds replacements, alongside two other board members.
Citing its ongoing belief in the demerger proposal as the “best way forward” for the company and its shareholders, AGL said its board has come to the conclusion that “this path is no longer available”.
In the statement filed with the ASX, AGL admitted that support for the demerger would have been shy of the 75 per cent approval threshold at the vote set for 15 June, given the stated opposition from a number of investors including Grok Ventures.
“While the board believed the demerger proposal offered the best way forward for AGL Energy and its shareholders, we have made the decision to withdraw it,” Mr Botten said.
The board is now set to launch a review of AGL Energy’s “strategic direction”, including “any new approached from third parties regarding alternative transactions”.
“The board will now undertake a review of AGL’s strategic direction, change the composition of the Board and management, and determine the best way to deliver long-term shareholder value creation in the context of Australia’s energy transition,” Mr Botten said.
Better, greener path
Responding to the announcement, Grok Ventures’ Mike Cannon-Brookes tweeted it’s “a huge day for Australia” and said a “better, greener path” lies ahead.
“We embrace the opportunities of decarbonisation with Aussie courage, tenacity & creativity.
“Lots of work but we CAN do this.”
Mike Cannon-Brookes, who recently purchased an 11.3 per cent stake in AGL via his Grok Ventures, has been the biggest and most vocal opposer of the demerger.
In a bid to sway votes, Mr Cannon-Brookes recently published an open letter on his new website, created in a bid to enlist support for his vision, arguing that the demerger plan “makes no sense, or cents”.
“We are incredibly optimistic about AGL’s potential – which is why we’ve joined you as a shareholder – but there will be no turning back if this flawed demerger plan goes ahead. This is our best opportunity, and quite possibly the last to steer this company in the right commercial direction,” Mr Cannon-Brookes said at the time.
Demerger is dead
Also welcoming AGL’s announcement, Glenn Walker, senior campaigner at Greenpeace Australia Pacific, labelled the backflip “humiliating”.
“AGL’s humiliating demerger backflip has to go down as one of the most bungled and misguided attempts at a corporate restructure in Australian history. It should be a lesson for any company that failing to act seriously on climate carries serious consequences,” he said.
“Graeme Hunt and Peter Botten, the chief architects of this failure, must fall on their coal-blackened swords. But the entire AGL board is culpable. They failed to listen to the huge number of investors voting for a climate resolution at its last AGM. They failed to understand the shifting political landscape towards climate action,” Mr Walker continued.
The dud demerger essentially squandered $160 million of shareholders money, Mr Walker said, with AGL itself confirming on Monday that the estimated expenditure to date is approximately $160 million of the total $260 million estimated cost of the demerger.
“There must be a sweeping renewal of the board to transform AGL. Swift coal closure and a decisive energy transition will take AGL from Australia’s biggest climate polluter to a renewables leader,” Mr Walker said.
Last minute backflip
AGL had strongly maintained its support for the demerger despite fierce opposition up until its Monday morning announcement.
Just last week, HESTA confirmed that it would vote against the demerger having deemed that an “orderly transition” to net-zero emissions is in the “best financial interests of our members”.
In a statement seen by InvestorDaily, HESTA said that, having reviewed AGL’s plan, it remained unconvinced that the overall demerger would sufficiently accelerate decarbonisation to meet Paris-aligned targets.
“When voting this AGM season, we’re considering if companies are suitably managing risk and enabling the creation of long-term value. And that they’re doing this in a way that promotes a stronger economy and the management of systemic risks that benefits our members and all Australians,” HESTA CEO, Debby Blakey, said last Wednesday.
Despite HESTA’s very public rejection of the demerger, AGL quickly followed up with its own statement strongly reaffirming its intentions, in which it seeming took a very public swipe at those opposing the demerger.
“AGL Energy has outlined a clear and detailed demerger plan that is the best path forward for the company, for shareholders, and for Australia’s responsible energy transition. It has been unanimously recommended by the AGL Energy Board and it is supported by the Grant Samuel Independent Expert report,” AGL managing director and CEO Graeme Hunt said at the time.
“It is critical that AGL shareholders make this important decision based on information that is factual and consistent.”
However, it is now clear that shareholders have rallied together in defiance of the demerger.
AGL Energy is not expected to report back to shareholders and investors until September when it plans to provide a progress of the review of its strategic direction alongside its financial results.
