By Shashwat Awasthi and Harish Sridharan
(Reuters) -Australia’s biggest power producer AGL Energy Ltd on Monday rejected a surprise $3.54 billion takeover approach from billionaire Mike Cannon-Brookes and Canada’s Brookfield Asset Management in favour of a plan to split in two this year.
AGL said the A$7.50 apiece proposal from the Canadian group and Cannon-Brookes, Australia’s second-richest man and co-founder of software firm Atlassian, at a 4.7% premium to the stock’s Friday close undervalued it.
“The proposal does not offer an adequate premium for a change of control and is not in the best interests of AGL Energy shareholders,” AGL Chairman Peter Botten said.
AGL’s shares jumped as much as 13% on Monday to a high of A$8.09, reflecting investors’ view that a higher bid will emerge.
The unsolicited cash proposal with an option for AGL shareholders to elect a scrip alternative provided limited other information about how the deal would be structured, Botten said.
Investors see companies like AGL as tough to value with electricity prices highly volatile in the accelerating transition away from coal-fired generation.
Brookfield and Cannon-Brookes would need a very low cost of capital to make the switch to renewables generate a good return, said Jason Teh, chief investment officer of Vertium Asset Management, which does not own AGL shares.
“What are they going to do? The transition from coal to renewables is going to be a huge challenge for AGL,” Teh said.
Brookfield said it would comment on its proposal soon. Cannon-Brookes and his investment vehicle Grok Ventures did not immediately respond to requests for comment.
AGL, Australia’s biggest polluter, has been hammered over the past few years by sliding power prices, with the influx of solar and wind power making coal-fired plants less economic to run 24 hours a day.
To rebuild value, it plans to split into two companies, rebranding its coal-fired power generation business as Accel Energy and spinning off its retail arm and renewable energy business as AGL Australia by June.
“The board is confident that the demerger will create a strong future for both parts of the business,” Botten said.
It flagged earlier this month it would speed up the closure of its coal-fired generation by three years to 2045. AGL’s Loy Yang A plant is scheduled to be the country’s last coal-fired plant to switch off.
($1 = 1.3961 Australian dollars)
(Reporting by Harish Sridharan and Shashwat Awasthi in Bengaluru; Additional reporting by Sonali Paul in Melbourne; Editing by Grant McCool and Stephen Coates)
