Brookfield Spurned in $14 Billion Plan to Close Coal Plants

(Bloomberg) — Australian utility AGL Energy Ltd. rejected a multibillion-dollar takeover bid from Brookfield Asset Management Inc. and technology billionaire Mike Cannon-Brookes, who plan to accelerate the closure of the company’s polluting coal-fired power plants.

Most Read from Bloomberg

The proposal of A$7.50 a share, a 4.7% premium to Friday’s closing price, “materially undervalues” the company, AGL said in a statement to the Australian Securities Exchange. The consortium of Brookfield and Cannon-Brookes’s investment firm Grok Ventures has a A$20 billion ($14 billion) transition plan for AGL and “remains optimistic that an agreement can be reached,” it said.

The public debate on climate change and the role of coal-fired power stations, which still provide most of Australia’s electricity, intensified after the unprecedented wildfires of 2019-2020. The government, which has always backed fossil fuels, buckled to sentiment and last year set a net-zero target by 2050, but calls are intensifying to piggyback on the nation’s geographical advantages and the falling cost of renewable generation to build out a green power industry.

“If successful, this will be one of the biggest decarbonisation projects in the world today and show Australia is capable of globally significant projects,” Cannon-Brookes said. “This proposal will mean cheaper, cleaner and more reliable energy for customers.”

The offer is fully funded, the consortium said. Under the plan, 7 gigawatts of AGL’s capacity will be replaced with at least 8 gigawatts of clean energy and storage to make the utility net zero by 2035.

AGL, which formed in 1837, is responsible for the largest share of Australia’s scope one greenhouse gas emissions, and this month disappointed climate campaigners when it announced plans to bring forward the decommissioning of two giant coal plants by only a few years. Shareholders would earn more value from its own plan to split off the power generation assets into a separate company, the Sydney-based utility said.

The firm’s value almost halved last year as it was hit by plunging costs of wind and solar generation that have dragged down power prices and waning investor appetite for polluting assets. Utilities globally are attempting to respond to an accelerating energy transition, and AGL previously outlined a proposal to split off its coal-fired power plants into a separate unit and repurpose some sites as low-carbon energy hubs.

AGL’s plan to split its assets is on track to be completed by the end of June, Chairman Peter Botten said in the statement. Accel Energy, which will house the company’s fossil fuel generation assets, would target a cut in greenhouse gas emissions by as much as 60% by 2034.

Shareholders are keen to see AGL reduce its carbon footprint, but are also likely to be supportive of the board’s push for a higher price.

“The board should continue to engage with Brookfield and Cannon-Brookes, however they will need to considerably increase the offer if they want to get the investment community onboard, even though we agree with the ideals they propose,” said Jamie Hannah, deputy head of investments and capital markets at Van Eck Associates Corp, which owns shares in AGL.

AGL said this month that its Bayswater facility in New South Wales state would shutter by 2033, two years earlier than previously planned, while Loy Yang A in neighboring Victoria would halt by 2045 instead of 2048. The firm had previously faced a 2020 shareholder resolution, supported by investors including BlackRock Inc., calling for it to speed up closures of its coal assets.

Read more: Coal Power Exit in Australia Accelerates as Origin Eyes Shutdown

Rival Origin Energy Ltd. said last week that its Eraring coal plant could retire in 2025, seven years earlier than previously planned. The faster exit of power assets has drawn criticism from Prime Minister Scott Morrison’s government which has argued the moves could put the affordability and reliability of Australia’s electricity supplies at risk.

“Our government is very committed to ensure we sweat those assets for their life to ensure that businesses can get access to the electricity and the energy they need at affordable prices,” he said Monday.

AGL shares jumped as much as 13% on Monday to A$8.09 a share. The stock closed at A$7.16 on Friday, valuing the company at A$4.7 billion.

(Updates with comments from consortium from second paragraph)