Cannon-Brookes returned after being thwarted in March in a joint A$5.4 billion ($3.8 billion) takeover bid for the country’s biggest carbon emitter, seeking to speed up the shutdown of its coal-fired power plants and reverse a 75% drop in its share price over the past five years.
The move injected further uncertainty into the outlook for the split, sending AGL shares down nearly 3% in a broader flat market on Tuesday. The stock, however, continued to trade above the offer of A$8.25 per share that AGL rejected in March.
Cannon-Brookes, in a letter released on Monday, called AGL’s plan to split into an “imperfect” coal-fired energy retailer and power generator and said he would vote his shares against the spin-off. the country’s largest electricity producer.
In its first response to the letter, AGL’s board of directors argued that it was in the best interests of shareholders to move forward with its proposal. He plans to put the proposal to a shareholder vote in mid-June, with the aim of completing the spinoff by the end of June.
The board said the proposed split would create “the potential to maximize growth in share value by giving each company the freedom to pursue individual strategies and growth initiatives.”
Cannon-Brookes, whose stake in the company is worth around A$650 million ($459 million), said in his letter to the board that he expected the combined value of the two companies ” is worth less than where AGL is trading today”.
He will need the support of the owners of an additional 14% of the company to be able to block the split, which requires the approval of 75% of the votes cast to go ahead.
About half of AGL’s shares are held by households, which generally tend to follow the recommendations of the board of directors. However, analysts said Cannon-Brookes’ broad public exposure could change that.
UBS analysts said the fact that retail investors “may not have had the same access to management as institutional investors to understand the complex rationale for the divestiture, combined with the interest and Cannon-Brookes’ influence, now further amplifies the risk of shareholder approval.”
Van Eck, one of AGL’s top 10 institutional investors, has yet to decide which way he will vote and will speak to Cannon-Brookes about his plans, deputy chief investment officer Jamie Hannah said.
“The split as a whole is not a good idea, but senior management is in a position where they have to do something,” Hannah said.
($1 = 1.4156 Australian dollars)
(Reporting by Shashwat Awasthi; Editing by Uttaresh.V & Shri Navaratnam)
By Sonali Paul