By Angela Macdonald-Smith
Fund manager Geoff Wilson has voiced “grave concerns” that AGL Energy’s proposed demerger will destroy value for shareholders, providing a firm sign that financially focused investors may join chief opponent Mike Cannon-Brookes in seeking to vote down the split.
Mr Wilson said his firm was “seriously thinking about voting against the demerger”, citing worries about the impact on value from the proposed division of Australia’s biggest electricity generator into coal power-focused Accel Australia and retailer AGL Australia.
As reported in The Australian Financial Review’s Street Talk column, Mr Wilson’s ASX-listed WAM Strategic Value Ltd has bought a stake in AGL, a move he pitched as a value play to investors in Brisbane last week. The company could be worth $10.50-$11 a share, Mr Wilson is understood to have told investors.
Mr Wilson confirmed on Monday that the fund may vote its “small” shareholding in AGL against the demerger, which requires 75 per cent approval from voting shareholders at a meeting on June 15 to proceed.
“We are seriously thinking about voting against the demerger with grave concerns about the wealth destruction of the planned demerger,” he told the Financial Review, adding he was looking at the restructuring from a financial perspective.
But AGL chief executive Graeme Hunt reiterated the board’s view that the demerger plan is the best path for the company and its shareholders, and for an orderly energy transition for Australia.
“The demerger represents decisive action towards decarbonisation and will enable AGL Australia and Accel Energy to responsibly accelerate the decarbonisation of Australia’s energy system, faster than could have been achieved as one company,” he said.
Starkly opposing views
Most investors are yet to say definitively which way they will vote amid the campaigns by the AGL board on one side, and by Mr Cannon-Brookes’ Grok Ventures on the other to align shareholders to their starkly opposing views.
Mr Cannon-Brookes stepped up his arguments against the demerger on Sunday following Labor’s win in the election, saying it showed that a demerger proposal that envisaged a decarbonisation for AGL that was not in line with Paris climate targets was “not going to fly”.
But Mr Hunt pointed to AGL’s recent deal with Global Infrastructure Partners for investment of up to $2 billion in Accel renewable energy projects as a sign of the market’s confidence in the strategy.
Still, Mr Wilson said that the demerger would result in two smaller, weaker companies that would have little financial capacity to drive decarbonisation, if that was the AGL board’s focus.
“My thoughts are that an un-demerged AGL would have the financial ability of leveraging its 4.5 million customers to give offtake certainty while using its balance sheet and the green bond markets to lead investment, with a partial recycling of capital into infrastructure funds once projects are approved and construction risks are resolved,” he said.
Meanwhile, listed investment company Cadence Capital said it had switched its previous “short” position in AGL to a “long” one in the belief that the company was fundamentally undervalued in the market, especially given the turnaround in wholesale electricity prices.
Portfolio manager Jackson Aldridge said Mr Cannon-Brookes’ previous bids for AGL with Brookfield, at $7.50 and $8.25 a share, showed he also saw value in the assets.
“What his ultimate plan is I’m not sure, but what I do know by his actions … I think he understands these assets are undervalued,” Mr Aldridge said on Cadence’s quarterly audiocast. “I don’t think $8.25 is the last move here.”
“We feel, and the market is saying and Mike Cannon-Brookes is saying that the value of the assets is much greater than the share price right now,” he said, pointing to the value of the retail business for a potential acquirer such as Telstra and the $1 billion-plus that would be generated by AGL’s businesses – whether merged or demerged – in a “normalised” wholesale electricity price environment.
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