AGL Energy Withdraws Demerger Plan, Announces Board Renewal

AGL Power Station at Torrens Island in Adelaide, Australia, on Nov. 4, 2019. (AAP Image/Kelly Barnes)

AGL Energy scrapped its demerger plan on May 30 after facing strong opposition from its largest shareholder–tech billionaire Mike Cannon-Brookes.

In its latest statement, the company said that it was unlikely for the demerger proposal to get the necessary support from three-quarters of the shareholders for the proposition at the June 15 shareholder meeting.

“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,” AGL Energy Board Chair Peter Botten said.

AGL also disclosed that it had spent about $160 million (US$115 million) of the demerger plan’s total estimated cost of $260 million.

At the same time, the company announced the renewal of the board and management team, with the resignation of chairman Peter Botton, chief executive Graeme Hunt, and two other non-executive directors. Botton and Hunt will continue to act in their current roles until AGL appoints their replacements.

“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,” Botten said.

Previously, AGL had proposed to split the company into two separate entities: an energy retailer called AGL Australia and a coal-fired electricity generator called Accel Energy.

The new entities were supposed to have targets to achieve net-zero emission levels by 2040 and 2047, respectively.

Although AGL ditched its demerger plan, it said that the relevant closure dates of its coal-fired power stations were expected to be continuously accelerated.

Power lines at the AGL Power Station at Torrens Island in Adelaide, Nov. 4, 2019. (AAP Image/Kelly Barnes)

In addition, AGL’s board said it would report a new strategic direction of the company to shareholders in September while looking to replace the two non-executive directors.

The energy company further said that a board subcommittee co-chaired by directors Vanessa Sullivan and Graham Cockroft would oversee the review of its strategic direction.

“Wow. A huge day for Australia,” Cannon-Brookes said of the demerger news on a Twitter post, which included a photo of a trail through the bush.

“Had to sit down & take it in. This live shot couldn’t be a better metaphor for a better, greener path ahead. We embrace the opportunities of decarbonisation with Aussie courage, tenacity & creativity.”

Meanwhile, RBC Capital Markets analyst Gordon Ramsay wrote that while the $160 million spent on the demerger plan did not produce the desired result, part of the spending might still be useful.

“There is potential to use some of the ‘extensive analytical work’ and ’throughout assessment of the strategic plans’ that were developed for the AGL Australia and Accel Energy for new analysis,” he wrote.

While successfully derailing AGL’s demerger plan, Cannon-Brookes did not rule out the possibility of another takeover in the future.

“No one can know what can happen in the future in any real sense, but it [another takeover bid] is not something that we’re spending any amount of calories on at the moment,” he said, as reported by ABC.