Brookfield Spurned in $14 Billion Plan to Close Australian Coal Plants

James Thornhill and Scott Deveau
Mon, February 21, 2022




(Bloomberg) -- Australian utility AGL Energy Ltd. rejected a multibillion-dollar takeover bid from Brookfield Asset Management Inc. and technology billionaire Mike Cannon-Brookes, who plan to accelerate the closure of the company’s polluting coal-fired power plants.

Brookfield and Cannon-Brookes’s investment firm Grok Ventures have a A$20 billion ($14 billion) transition plan to shift AGL to clean energy and “remains optimistic that an agreement can be reached,” the consortium said in a statement. AGL shares jumped 11% to close at the highest since July.

“The board should continue to engage with Brookfield and Cannon-Brookes, however they will need to considerably increase the offer if they want to get the investment community onboard, even though we agree with the ideals they propose,” said Jamie Hannah, deputy head of investments and capital markets at Van Eck Associates Corp, which owns shares in AGL.

A proposal of A$7.50 a share, a 4.7% premium to Friday’s closing price, “materially undervalues” the company, Sydney-based AGL said in a statement. The company’s own plan to split off its coal assets into a separate unit would deliver better shareholder value, and offers a more responsible path to decarbonization, the utility said.

Public debate on climate change in Australia and the role of coal, which still provides most of the country’s electricity, intensified after wildfires in late 2019 and early 2020. Though Prime Minister Scott Morrison set a net-zero emissions target last year, his government has been criticized for favoring a slower energy transition. He has been pushed by some investors to exploit the nation’s abundant sun and wind to more rapidly build out a green power industry.

AGL, formed in 1837, is responsible for the largest share of Australia’s scope one greenhouse gas emissions, and this month disappointed climate campaigners when it announced plans to bring forward the decommissioning of two giant coal plants by only a few years.

“If successful, this will be one of the biggest decarbonization projects in the world,” said Cannon-Brookes, co-founder of software developer Atlassian Corp. and Australia’s fourth-richest person. AGL accounts for more than 8% of Australia’s emissions, he said. “This proposal will mean cheaper, cleaner and more reliable energy for customers.”

Brookfield’s plan would replace seven gigawatts of AGL’s fossil fuel generation capacity with at least eight gigawatts of clean energy and storage capacity, enabling the utility to hit net zero emissions by 2035, according to the consortium.

AGL’s existing plans would keep two key coal-fired plants running into 2033 and 2045 respectively. Under its proposed demerger, Accel Energy, which will house the company’s fossil fuel generation assets, would target a cut in scope one and two greenhouse gas emissions by as much as 60% by 2034.

The firm’s value almost halved last year as it was hit by plunging costs of wind and solar generation that have dragged down power prices, and waning investor appetite for polluting assets. Utilities globally are attempting to respond to an accelerating energy transition, and AGL previously outlined its proposal to split off its coal-fired power plants into a separate unit and repurpose some sites as low-carbon energy hubs.

Brookfield plans to invest via its Brookfield Global Transition Fund, which is in the final stages of raising about $15 billion. It values AGL’s equity at A$5 billion ($3.6 billion). The deal would provide an opportunity to build a dominant position as a clean energy generator in Australia and to secure an electricity retailer that serves about 4.5 million customers.

Rival Origin Energy Ltd. said last week that its Eraring coal plant could retire in 2025, seven years earlier than previously planned. The faster exit of power assets has drawn criticism from Morrison’s government, which argues the moves could put the affordability and reliability of Australia’s electricity supplies at risk.

“Our government is very committed to ensure we sweat those assets for their life to ensure that businesses can get access to the electricity and the energy they need at affordable prices,” Morrison said Monday.

Australia's AGL Energy spurns surprise $3.5 billion bid, suitor Brookfield digs in

The logo of AGL Energy Ltd, Australia's no.2 power retailer, adorns the building of their head office in Sydney, Australia

Sun, February 20, 2022,
By Sonali Paul and Shashwat Awasthi

MELBOURNE (Reuters) -Australia's top power producer AGL Energy Ltd on Monday rejected an unsolicited $3.54 billion takeover overture from tech billionaire Mike Cannon-Brookes and Canada's Brookfield Asset Management, sticking to its own spin-off tune.

The surprise bid comes as AGL seeks to split itself in two - a retail and renewable energy operation and a coal-fired generation business - by June in an attempt to turn around a 75% slump in its market value over the past five years.

Brookfield and Cannon-Brookes, Australia's second-richest man, said their goal is to speed up delivery of cleaner and cheaper energy. AGL, Australia's biggest polluter, produces more than 8% of Australia's carbon emissions.

But AGL said the A$7.50 per share cash proposal - a 4.7% premium to the stock's Friday close - undervalued the business. The shares jumped as much as 13% on Monday, to a high of A$8.09, as investors placed bets that a higher bid will emerge.

"Energy transition will be one of the biggest investment opportunities of our lifetime," said Mark Carney, vice chair of Brookfield, which has nearly $700 billion in assets under management, and former Bank of England governor.

Brookfield and Cannon-Brookes, a co-founder of software business Atlassian Corp and climate activist, said they plan to invest about A$20 billion ($14.4 billion) to replace AGL's coal-fired power with clean energy and storage, aiming to achieve net zero carbon emissions by 2035, five years earlier than AGL's current plan.

On Monday, AGL was unmoved.

"The proposal does not offer an adequate premium for a change of control and is not in the best interests of AGL Energy shareholders," AGL Chairman Peter Botten said, adding that the company's own spin-off plan will build a "strong future" for both parts of the business.

The bidding consortium hopes to persuade AGL's board to allow the team to look at AGL's books, Brookfield's Asia Pacific Chief Executive Officer Stewart Upson said.

"This is going to be a long journey," Upson told Reuters in an interview. "And during that time, we would likely bring in other partners, who we've already been talking to."

He declined to say what the ownership split would be between Brookfield, Cannon-Brookes and potential others. In its recent acquisition of power distributor AusNet Services, Brookfield ended with a 45% stake alongside other institutional investors.

BID BATTLE?

Analysts said the approach from Brookfield and Cannon-Brookes could spark a bidding war for AGL, with major European companies, including Shell, Spain's Iberdrola and France's TotalEnergies all looking to expand into Australian power retailing.

Those companies, however, are unlikely to want AGL's legacy coal power business as they look to decarbonise their own operations.

"This is not a low-risk venture - that's why no-one else has emerged to date," said Tim Buckley, founder of a new think tank, Climate Energy Finance.

AGL's earnings have been hammered in recent years by an influx of cheap solar and wind power. That has made coal-fired plants less viable. At the same time the government has forced utilities to slash power prices to households and businesses.

The bidding team said they would not shut coal-fired capacity until it has been replaced by renewables and storage to ensure steady supply and prices. AGL flagged earlier this month it would shut its last coal-fired plant in 2045.

"This proposal will mean cheaper, cleaner and more reliable energy for customers," Cannon-Brookes, 42, said in a statement. "It will create over 10,000 Australian jobs and ensure customers don't bear the brunt of higher power prices - a likely scenario if the proposed demerger happens."

Brookfield has nearly completed raising $15 billion for a Global Transition Fund which will be used for the bid. Brookfield says the fund is the world's largest focused on investing in the transition to a net zero economy.

Cannon-Brookes has long pushed for Australia to speed up the shift to clean energy. He spurred Tesla's Elon Musk to build Australia's first large-scale battery in 2017 and is backing a A$20 billion project, Sun Cable, to supply solar power from northern Australia to Singapore.

($1 = 1.3877 Australian dollars)

(Reporting by Sonali Paul in Melbourne and Shashwat Awasthi in Bengaluru; Additional reporting by Harish Sridharan in Bengaluru; Editing by Stephen Coates and Kenneth Maxwell)