AGL must pivot to “do well and do good” after its failed demerger, ASA says

AGL Energy must balance shareholder and consumer needs while making strides toward a decarbonised future, the CEO of the Australian Shareholders’ Association (ASA) said, after the energy titan abandoned its demerger amid low confidence it would pass.

A high profile proposal to split AGL down the middle to create a retail company — Accel Energy — and a coal-focused power generation business — AGL Australia — needed 75% shareholder approval at a mid-month meeting in June.

In a sensational announcement to the ASX, the board of Australia’s largest electricity organisation confirmed it would ditch the upcoming vote following a contrarian campaign from Atlassian billionaire Mike Cannon-Brookes, the company’s largest shareholder.

AGL’s chief executive Graeme Hunt and chair Peter Botten both announced they’d resign from their posts amid the fallout, while non-executive directors Jacqueline Hey and Diane-Smith Gander would also walk.

“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,” Botten said.

“The board will now undertake a strategic direction, change the composition of the board and management, and determine the best way forward.”

ASA chief Rachel Waterhouse says the decision speaks to a larger trend toward greener investment — indeed a recent ESG survey showed 69% of respondents avoided investing in industries that had ethical or sustainability concerns (gambling, fossil fuels, tobacco).

“Increasingly, investors are considering ethical and sustainable options for their portfolios,” she said.

And it’s not simply a case of newer, more progressive blood in the market, she said: “86% of retail investors responding are experienced investors who have been investing for over 15 years”.

So what now for AGL? Waterhouse said it actually provides a great opportunity for the board to forge a pathway where it can “do well and do good”.

“The withdrawal of the demerger provides an opportunity for AGL to engage with retail shareholders and stakeholders to craft a strong strategic plan for the future of AGL that creates value for shareholders, provides consumers with reliable energy options, and a plan for decarbonisation,” she said.

Waterhouse pointed out that AGL shareholders have been disappointed in the “destruction of company value over the past five years”, with stocks falling over that period from $27.09 to $8.61 per share (as of last week).

Cannon-Brookes declared he would seek two nominees to the AGL board if his campaign to block the demerger succeeded — and ASA policy and advocacy manager Fiona Balzer said ASA guidelines would support a substantial shareholder having nominee directors on the board in line with their holding, “which would support 1 of 7 NEDs being a Grok nominee”.

“For ASA to support a second candidate, they would need to be impressive, acceptable to all, and independent rather than a nominee. Or Grok would need to increase its shareholding,” she explained.

Cannon-Brookes has long held that it made poor business sense to split the energy titan, but this morning celebrated the outcome from an environmental perspective too.

“Wow. A huge day for Australia,” he tweeted alongside a photo of a bushwalking trail.

“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. Lots of work but we CAN do this”

Wow. A huge day for Australia 💚💛

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.

Lots of work but we CAN do this 👊🏻 pic.twitter.com/mSCQl554C0

— Mike Cannon-Brookes 👨🏼‍💻🧢🇦🇺 (@mcannonbrookes) May 29, 2022

It comes after Cannon-Brookes, one of Australia’s wealthiest people, amassed an 11.3% stake (via his investment arm, Grok Ventures) in AGL following a failed takeover bid earlier this year.

Earlier this month the tech boffin launched a campaign to block the demerger on the grounds the two smaller entities would be slower to shut down coal-fired power stations than our climate goals permitted.

AGL’s power stations — both coal and gas — account for 8% of the country’s greenhouse gas emissions, making the company the single biggest emitter in Australia, but AGL’s plan for Accel Energy was to continue burning coal until the 2040s.