Finance Finance News ‘Bloodbath’: Scrapped AGL demerger clears way for faster coal closures

‘Bloodbath’: Scrapped AGL demerger clears way for faster coal closures

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Australia’s largest energy retailer AGL is expected to shut its coal-fired power stations sooner than planned after the $5.8 billion company was forced to abandon a controversial demerger.

AGL’s board wanted to split the 185-year-old business so that its consumer-facing arm could achieve net-zero emissions without being weighed down by its fleet of heavy-emitting coal-fired power stations.

But the controversial bid, which critics argued would delay AGL’s energy transition, has now been canned after failing to muster enough shareholder support, forcing chairman Peter Botten and CEO Graeme Hunt to announce their resignations on Monday.

AGL will now negotiate with its largest shareholder Grok Ventures – an investment vehicle owned by tech billionaire Mike Cannon-Brookes – and the Labor government on climate plans for Australia’s biggest polluter.

Experts said this means the door has now opened for AGL to exit coal power much sooner than planned, particularly under Labor’s target for a 43 per cent reduction in carbon emissions by 2030.

‘Major development’: Grand plan scrapped

AGL’s board said on Monday that while it still believes the demerger bid was the best path forward, it didn’t have enough support to succeed.

Under the now-failed plan, AGL’s retail business would have split from its power generation arm.

It would have allowed AGL to present its 4.5 million customers with a stronger environmental scorecard, despite also pursuing a relatively slow energy transition that would have seen the company close its final coal plant in 2045.

The company claimed the demerger would speed up its net-zero plans.

But critics (including large shareholders) feared it would do the opposite and tie AGL to ageing fossil fuel assets, arguing it wasn’t clear whether the plan was consistent with targets set out under the Paris Agreement.

Chief among the detractors was Mr Cannon-Brookes, who bought a big stake in the business and rallied other investors against the demerger.

He even tried to buy AGL outright to speed up its energy transition.

That deal, which was rejected at the time, will now be re-examined as what’s left of AGL’s board contemplates their recent defeat and their next move.

AGL’s board said it will consider how the company can create value for shareholders in “an environment where pressure on decarbonisation and affordability is accelerating”.

It will do so under new leaders, with half the board resigning on Monday, including the key architects of the demerger in Mr Botten and Mr Hunt.

Harriet Kater from the Australasian Centre for Corporate Responsibility  said these resignations represent a “bloodbath” that is “well overdue”.

“By failing to set Paris-aligned targets for the proposed demerged entities, the board of AGL ignored a fundamental demand of a majority of shareholders less than a year ago,” she said.

“They’ve now paid the price.”

Bruce Mountain, the director of Victoria University’s energy policy centre, said the failed demerger was a “major development” that should leave AGL open to outsider ideas.

“The board has obviously failed to secure the support of investors for their proposals,” he said.

“AGL’s failure to effectively grapple with the decarbonisation challenge must surely be a lesson to Australian corporations – a long series of strategic errors are now bearing fruit.”

Faster coal closures

The most influential of those outsider ideas will be accelerating AGL’s timeline for closing down its dirty coal-fired power plants.

Mr Cannon-Brookes, AGL’s most vocal critic, wants the giant to close its final coal plant by 2035 – 18 years sooner than the company is currently planning.

The billionaire said on Monday that the abandoned demerger marked a “huge day for Australia” and pointed to a “better, greener, path ahead”.

He will now have an opportunity to help forge this path, irrespective of whether he is successful in buying the entire company.

AGL’s board has conceded this much in a statement on Monday, saying it “remains committed to decarbonisation”.

“AGL has been in ongoing discussions with key stakeholders in this regard and believes the relevant dates for closure of coal-fired power stations will continue to be accelerated,” it said.

Polly Hemming, climate adviser at the Australia Institute, said faster coal closures are the likely outcome of Monday’s move.

“This is a positive outcome. It forces AGL to solve their own problems rather than just carve them off and relinquish responsibility,” she said.

But it remains to be seen how AGL abandoning its merger will affect Mr Cannon-Brookes’ plans to buy the company outright and speed up its transition to renewable energy.

His investment vehicle Grok Ventures will have a seat at the table in deciding the path forward, but that doesn’t necessarily mean a full-scale buyout of the company will be approved by shareholders.

Mr Cannon-Brookes tried to buy AGL earlier this year and take the company private at $8.25 a share, but his bid was rejected after the board said it undervalued the business.

AGL’s share price fell slightly on Monday but still ended the day at $8.72, a 5.7 per cent premium on Mr Cannon-Brookes’ earlier bid.