AGL Energy rejects A$8bn Brookfield-led takeover bid

The Australian-listed energy giant said the offer, which involves plans to speed up closure of coal power plants, “materially undervalues” it.

Australian energy giant AGL Energy has rejected an A$8 billion ($5.77 billion; €5.07 billion) surprise takeover bid by a consortium led by Brookfield Asset Management, ahead of the publicly-listed company’s proposed demerger.

The consortium – which also comprises Australian private investment firm Grok Ventures, owned by billionaire Atlassian co-founder Mike Cannon-Brookes and his wife Annie Cannon-Brookes – said it intended to invest a further A$10 billion in the business to accelerate the closure of its coal-fired power stations.

According to the State of the Energy Market 2021 report, AGL Energy’s generation assets accounted for 19 percent of capacity and 25 percent of output across Australia’s National Electricity Market in 2020, including both fossil fuel and renewables-based generation. The firm also controls the most electricity capacity in New South Wales, Victoria and South Australia, the three states under the NEM where private companies own the majority of capacity.

The Brookfield-Grok consortium made a non-binding indicative offer on Saturday to acquire 100 percent of AGL Energy for A$7.50 per share. The bid was rejected by the company’s board on Monday.

A source with knowledge of the bid told Infrastructure Investor that Brookfield’s Global Transition Fund, which is approaching a final close on $15 billion, would hold an 80 percent stake in the consortium, with Grok Ventures holding the remaining 20 percent.

Brookfield said in a statement: “The investment in AGL would be the largest investment from the fund to date, not only in terms of capital invested but also in terms of the expected renewables build out and carbon reduction.”

The proposed demerger of AGL Energy – which was announced in March last year and is set to complete by 30 June – will result in the establishment of two separately listed businesses, AGL Australia, which will be home to the company’s retail electricity business and its clean energy generation assets, and Accel Energy, which will house its legacy coal-fired power stations.

As part of its takeover bid, the consortium proposed to bring forward the transition of the legacy generation assets, with the aim of replacing the company’s 7GW of coal-fired generation capacity with “at least 8GW of clean energy and storage” by 2030. The consortium said that it intended for AGL Energy to reach net-zero emissions by 2035, 12 years faster than the company’s current plan.

Highlighting the Australian Energy Market Commission’s requirement for owners of Australia’s coal-fired power plants and other energy generators to provide at least three years’ notice of their intention to close generators, Grattan Institute energy and climate change deputy programme director Alison Reeves told Infrastructure Investor an agreement would have to be reached soon, if the consortium remained committed to reaching its 2030 target.

“You have to provide three years’ notice that you’re closing so there is time to build new generation and fill any gap in supply that [closing coal-fired power plants] might lead to… The longer this [deal] takes to sort out, the less likely it is that [the consortium] will be able to close them all by 2030 because they will start to run out of time for that three-year notice period,” Reeves told Infrastructure Investor.

In rejecting the bid, AGL Energy said: “The AGL Energy board has determined that the unsolicited proposal materially undervalues the company on a change of control basis and is not in the best interests of AGL Energy shareholders.

“In the absence of a proposal that provides appropriate value to AGL Energy shareholders on a control basis, the board continues to believe the demerger maximises value for shareholders and is in the best interests of shareholders.”

In a joint statement, Brookfield and Grok Ventures said: “The consortium notes today’s ASX statement from the AGL board and is disappointed it has chosen to reject what the consortium believes is a compelling alternative proposal for AGL shareholders, representing the best long-term outcome for AGL customers and all Australians through an accelerated transition to a decarbonised economy.

“The consortium remains optimistic that an agreement can be reached with the AGL board, which can help deliver the rapid decarbonisation of AGL’s portfolio, lower-cost energy for consumers and significant emissions reduction for Australia.”

In a recent interview with Infrastructure Investor, Brookfield Asia-Pacific regional head Stewart Upson highlighted transition investing as the biggest opportunity currently facing the infrastructure market and identified the Australian market as one to watch.

“Australia is uniquely placed globally as one of the wealthiest countries but also one of the most heavily dependent on fossil fuels with its electricity generation. And so with [our transition fund’s] pool of capital, we think we’re in a very good place to try and advance some of the change that needs to happen in that sector and we’ll be looking at a number of opportunities there,” he said.