So Grok gathered some ideas and began approaching potential financiers who might be involved in devising an alternative to the split. Sources said the alternative need not be a takeover; just something that would accelerate the energy giant’s transition, like an activist investor with a significant stake.
The AGL course clearly wasn’t for everyone. A number of Australia’s major capital market players, such as industrial funds and infrastructure managers, have strict mandates for investing in coal and coal-related industries. While AGL is a transitional game, coal is a big part of its future.
Over at Brookfield, the team also eyed AGL. The Canadian giant has $65 billion in assets related to renewable energy and the energy transition and was in the process of raising a new about $15 billion Brookfield Global Transition Fund that needed to be deployed.
Importantly, the transition fund was not just about supporting renewable projects. It had an appetite for coal as Mark Carney, Bank of England governor and now Brookfield head of transition investment, trumpeted for months helping these companies transition to renewable sources.
“Go where the emissions are,” he said last year. “That discipline of going there and helping the transition there is going to make all the difference.”
“We cannot reach net zero by simply buying all green assets.”
Brookfield didn’t necessarily need Grok’s capital or renewable energy expertise. But Cannon-Brookes, Australian first and foremost, has become a major player in the Australian economy and in the climate change debate, and any move in the 185-year-old AGL would be sure to make a splash.
So it was a meeting of minds and Project Arise was born. Sources said the couple got together in October last year, when Brookfield was still trying to buy Australian electricity and gas distributor AusNet Services and eyed a stake in smart meter business Intellihub.
The talks culminated in the non-binding and indicative offer delivered on Saturday to AGL Energy chairman Peter Botten, a former oil and gas sector executive who took over as chairman last April, and chief executive Graeme Hunt.
Street Talk’s bid of $7.50 a share, announced Sunday, was at a modest premium of 4.7 percent from the last close. The consortium pointed out that it was 19 percent more than the three-month VWAP.
Brookfield Asia Pacific CEO Stewart Upson (an Australian dealmaker) co-signed the offer letter with Cannon-Brookes. Brookfields Carney and renewable energy group leader Connor Teskey were also named, along with Grok CEO Kwong-Law.
In hindsight, Brookfield/Grok may wish it was moved sooner. AGL shares closed November at $5.10 and started the year at $6.14. Shares hovered above $7 in January as wholesale power prices rose and investors priced in higher earnings, eating away at the premium on the proposed offering.
Brookfield would make up 80 percent of the proposed equity check, while Grok would get the other 20 percent. Brookfield said AGL Energy is the biggest bet in its transition fund to date.
The company promptly rejected the offer on Monday, saying it would stick with its proposed split. It said the offer “materially undervalues the company on a change-of-control basis.”
AGL Energy shares were up $7.93 in late Monday trading, well above the bid price.
Citi and Jarden are advising on the offer, while Macquarie Capital, Goldman Sachs and Herbert Smith Freehills are in AGL Energy’s camp.