Dear fellow AGL shareholders,
On 2 May 2022, my investment group, known as Grok Ventures[1] (Grok), acquired an interest of more than 11% in AGL Energy. We did this because like you, we saw potential for one of the nation’s oldest companies to shape Australia’s energy future while delivering shareholder value.
When a worker lit Sydney’s first gas lamp in 1841, AGL Energy was a company excited to embrace the future – not one that was afraid of it. Today, after overseeing a share price decline of nearly 70% over 5 years[2], the AGL Energy Board, which owns less than 0.02% of the company, is asking us to vote on whether to split AGL Energy into two companies:
AGL AUSTRALIA: an energy retailing, trading and supply business.
ACCEL ENERGY: an energy generation business relying on fossil fuels for 90% of its energy generation.
We believe this is a deeply flawed plan that will deliver a terrible outcome for AGL shareholders, workers, customers, Australian taxpayers and the planet. We believe the best way we can realise the potential value of the company and create a brighter future is if we vote AGAINST the demerger and keep AGL together.
As a fellow shareholder, we urge you to consider the reasons why we believe the demerger is a flawed plan and why we are voting against it:
1. The demerger strategy misses one of Australia’s biggest economic opportunities
The Scheme Booklet released on 6 May 2022 confirms the Board’s lack of leadership and a strategy that misses one of Australia’s biggest economic opportunities, decarbonisation. Instead, shareholders are being asked to carry the burden of approximately $400 million to $500 million[3] in demerger costs and take a back seat to Australia’s energy transition. This lack of vision from the Board is consistent with their track record, having spent $0 on direct development of renewable generation over the last five years.
This inaction doesn’t just miss the economic opportunity, it’s globally irresponsible. AGL Energy is Australia’s single largest greenhouse gas emitter, representing 8% of Australia’s emissions. This is more than the countries of Ireland, Sweden, Portugal, or our neighbours, New Zealand.
2. Dividends and Accel Energy’s solvency are at risk
The Independent Expert’s Report indicates that shareholders are likely to face lower dividends if the demerger proceeds. Shareholders are unlikely to receive any franking credits for their Accel Energy shares until June 2025.
We are worried about Accel Energy’s cash flow profile based on the future profitability of its coal assets. The Independent Expert’s Report did not validate the Board’s claim that coal-fired power stations owned by Accel Energy will continue to be profitable assets through to their current target closure dates, reinforcing our doubts regarding the company’s ongoing solvency.
3. The demerger is value destructive
The Scheme Booklet confirms our view that AGL Australia and Accel Energy will be smaller, weaker companies that are more costly to run. When we compare their individual valuations to similar companies, we expect their aggregate value to be below where AGL Energy trades today.
AGL Australia: We do not believe that AGL Australia’s valuation will increase once it’s split, as it will still rely on Accel Energy and its coal generation assets over the next 5 years. It will also have a worryingly high debt burden, compared to similar companies[4], which may limit growth opportunities.
Accel Energy: The Independent Expert’s Report highlights the risk that Accel Energy may be valued at less than it is as part of AGL Energy, due to its heavy coal exposure.
4. The Board is ignoring shareholders, customers and workers
The Scheme Booklet states that the demerger plan is not aligned with the Paris Climate Accords, which endeavour to keep the planet’s warming below 1.5 degrees, substantially reducing the effects of climate change. This is despite the majority of shareholders supporting a motion calling for Paris-aligned targets at AGL Energy’s most recent Annual General Meeting[5]. This is also despite AGL Energy’s largest industrial customer, Tomago, demanding clean energy by the end of this decade[6]. The Scheme Booklet references jobs only once in 384 pages. It does not provide any detail on the transition plan for its workers, who will be impacted by its coal generator closure timelines. Ignoring these three key stakeholder groups risks further value destruction.
What happens if we successfully defeat the demerger?
If the demerger is voted down, you will continue to hold shares in AGL Energy. We intend to work with the Board to listen to shareholders and set a more ambitious plan for the company. A plan that attracts capital and customers. A plan that ensures that AGL Energy’s workers and communities are beneficiaries of this economic opportunity. One that delivers dividends and shareholder value. Let’s work together to put AGL Energy back at the forefront of Australia’s energy transition.
As the largest AGL Energy shareholder, we will be voting every share that we control at the relevant time AGAINST the demerger. We are calling on other shareholders to do the same – vote AGAINST the demerger and keep AGL together.
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Mike Cannon-Brookes
About Grok Ventures
Grok Ventures[1] is a business name used by the private investment group controlled by Mike Cannon-Brookes. Grok Ventures has invested in some of the most ambitious technologies and companies solving decarbonisation. Our investment portfolio spans early to growth stage start-ups and venture capital funds, small and large-scale infrastructure projects, and listed equities. We invest for the long term, driving step change in the largest emitting sectors, including energy, food, transport, and supply chains.
[1] Grok Ventures is a business name used by the private investment group controlled by Mike Cannon-Brookes. "Grok Ventures" is a registered business name of Cannon-Brookes Services Pty Limited (ACN 616 170 542). An affiliate of Cannon-Brookes Services Pty Limited, the Galipea Partnership, is the holder of a more than 11% interest in AGL Energy Limited. References in this letter to "we" or "our" or similar expressions in the context of views beliefs or opinions contained, or referred to, in this letter are the views, beliefs or opinions of Mike Cannon-Brookes and Cannon-Brookes Services Pty Limited current only as at the date of this letter. This letter does not purport to contain the views, opinions and beliefs of any other entity controlled by, or affiliated with, directly or indirectly, Mike Cannon-Brookes or any other person
[2] IRESS based on the closing price of AGL's shares of $26.76 on 28 April 2017 and $8.68 on 29 April 2022.
[3] AGL Scheme Booklet, page 16 & 254, 6 May 2022. The demerger costs comprise $260m of one-off transaction costs, $35m per annum of increased corporate and operating costs and $125m of tax inefficiencies.
[4] Similar companies refers to Australian and New Zealand based energy companies: AGL Energy, Origin, Meridian, Mercury and Contact.
[5] ACCR Shareholder Resolution to AGL Energy Ltd on Paris Goals and Targets, ACCR, 20 July 2021.
[6] AGL Energy’s biggest customer, Tomago Aluminium, issues green challenge, The Australian, 4 May 2022.
[7] Grok to intensify attack on AGL split as coal outages mount, AFR, 8 May 2022.