AGL Energy Shares Fall on Demerger Collapse

AGL Energy Shares Fall on Demerger Collapse

AGL Energy [ASX:AGL]  has withdrawn its demerger proposal, a shock move that came with executive casualties.

The collapse of the long-touted demerger has seen the resignation of AGL Chairman Peter Botten and CEO Graeme Hunt.

Two other board members have tendered their resignations in a big management overhaul or, as AGL put it, board ‘renewal’.

AGL shares sank as low as 4% in morning trade before retracing somewhat. In late afternoon trade, AGL was trading 1.7% down:

ASX:AGL stock chart


AGL demerger withdrawn

AGL announced that its original plan to split into AGL Australia and ACCEL Energy via a demerger had been canned.

The collapsed demerger plan has caused a management exodus.

Peter Botten (Chairman), Graeme Hunt (CEO and Managing Director), Jacqueline Hey (Non-Executive Director), and Diane Smith-Gander (board member) have resigned from their positions.

Earlier in May, AGL presented the demerger to shareholders under the rationale that by splitting into two entities, the company would be better placed to strategise toward renewable energy solutions.

ASX:AGL Merger  news

Source: AGL

The board expressed that the demerger was the ‘best way forward’, yet management admitted defeat today, believing it could not secure the necessary votes.

Shareholders, including tech billionaire Mike Cannon-Brookes, actively opposed the idea.

AGL will now revisit its strategies around decarbonisation and energy affordability.

Peter Botten, AGL’s current Chair, said:

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.

The Board will now undertake a review of AGL’s strategic direction, change the composition of the Board and management, and determine the best way to deliver long-term shareholder value creation in the context of Australia’s energy transition.’

Will the green future impact AGL’s outlook?

The cancellation of AGL’s demerger has taken place at a time when the world is hyper-aware of the need to transition to cleaner energy, including the phasing out of ‘dirty’ energy sources like coal stations.

Rachel Waterhouse from ASA says:

Increasingly, investors are considering ethical and sustainable options for their portfolios.’

She provided recent results from an ESG study which revealed that 69% of respondents avoid industries that harbour ethical or sustainability concerns, like fossil fuels.

Earlier in May, AGL reported FY21 revenue of $10.9 billion, with the bulk coming from its AGL Australia arm, which contributed $8.5 billion. Although it was the Accel Energy arm that was more profitable, registering FY21 underlying NPAT of $391 million.

ASX:AGL core finances table

Source: AGL

AGL remains one of Australia’s largest energy organisations, but the green future inches closer.

That can create confusion.

Given where the world is headed, how do you go about valuing AGL? What are its future cash flows worth given a green transition?

It’s always useful knowing how to value businesses.

So if you’re interested, please check out our latest report on how to do just that.

You can access some great tips on valuing businesses and finding bargain-priced stocks here.


Kiryll Prakapenka,
For The Daily Reckoning Australia