The AGL Energy Ltd (ASX: AGL) share price is up 9% after receiving and rejecting a takeover bid from Brookfield and Mike Cannon-Brookes.
What’s going on with a takeover bid?
After some media reporting of a Saturday bid, it has been confirmed that a bid arrived from Brookfield Asset Management and Grok Ventures to buy the whole AGL company for $7.50 per share.
This offer represented a 4.7% premium to the closing price of AGL of $7.16 on Friday.
Part of the offer was an option for AGL shareholders to receive shares in Brookfield’s acquiring vehicle, with shareholders able to own up to an overall maximum of 20% of that entity. The offer also had a number of other conditions like necessary approvals and due diligence.
AGL’s response to the takeover bid
The AGL board has decided that the offer materially undervalues the AGL share price on a ‘change of control’ basis and is not in the best interests of AGL shareholders.
AGL Energy Chairman Peter Botten said:
The proposal does not offer an adequate premium for a change of control and is not in the best interests of AGL Energy shareholders.
Under the unsolicited proposal the board believes AGL Energy shareholders would be forgoing the opportunity to realise potential future value via AGL Energy’s proposed demerger as both proposed organisation pursue decisive action on decarbonisation
What demerger?
For a while now, AGL has been working on a plan to split the business into two separately listed businesses – AGL Australia and Accel Energy. The board believes this will deliver good value for shareholders and is the best option. Essentially, the AGL share price will be better off if both businesses can focus on what they do best.
This demerger is on track for 30 June 2022.
The idea is that it will allow both companies to unlock value as they pursue their individual purposes and strategies.
AGL will still be a retailer of energy, whilst Accel Energy will own the energy generation assets (like coal). But both will be working towards a renewable energy-focused future. Both companies are expecting significant reductions of emissions.
What would a takeover mean?
Aside from shareholders getting cash and the AGL business being delisted, it would probably mean an acceleration of the closure of the AGL coal plants and a heavier investment into renewable energy generation. Origin Energy Ltd (ASX: ORG) recently announced it would be bringing forward the closure of the biggest Australian coal plant.
If the bidders manage to snag the company for less than the $6.1 billion of AGL assets, it would also mean a good deal for them. But it will take a much bigger bid to be accepted. These sorts of thing typically take a premium of at least 20% to 30% to the last share price to go ahead. It’ll be interesting to see what happens next and how the AGL share price reacts. Investors will probably expect another, higher bid to come in from the bidders.
