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Australia’s AGL Energy rejects $3.5 billion bid, investors expect more

The logo of AGL Energy Ltd, Australia’s second-largest electricity retailer, adorns its headquarters building in Sydney, Australia, February 8, 2017. Picture taken February 8, 2017. REUTERS/David Gray

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  • Australia’s 2nd richest man, Canadian Brookfield, has made a joint bid
  • The offer was at a 4.7% premium to AGL’s last close
  • AGL says split plans are on track
  • AGL shares jump 13%

Feb 21 (Reuters) – Australia’s biggest power producer AGL Energy Ltd on Monday rejected a surprise $3.54 billion takeover bid from billionaire Mike Cannon-Brookes and Canada’s Brookfield Asset Management (BAMa .TO) in favor of a plan to split in two this year.

AGL said the proposal of AU$7.50 each from the Canadian group and Cannon-Brookes, Australia’s second-richest man and co-founder of software company Atlassian, with a 4.7% premium relative to the stock’s close on Friday, the stock was undervalued.

“The proposal does not offer an adequate premium for a change in control and is not in the best interests of AGL Energy shareholders,” said AGL Chairman Peter Botten.

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Shares of AGL jumped 13% on Monday to a high of A$8.09, reflecting investors’ view that higher supply will emerge.

The unsolicited cash proposal with an option for AGL shareholders to elect an alternative to the certificates provided other limited information on how the deal would be structured, Botten said.

Investors view companies like AGL as difficult to value, with power prices highly volatile in the accelerated transition from coal generation.

Brookfield and Cannon-Brookes would need a very low cost of capital for the switch to renewables to generate a good return, said Jason Teh, chief investment officer of Vertium Asset Management, which does not own AGL shares.

” What will they do ? The transition from coal to renewables is going to be a huge challenge for AGL,” Teh said.

Brookfield said she would comment on her proposal soon. Cannon-Brookes and its investment vehicle Grok Ventures did not immediately respond to requests for comment.

AGL, Australia’s biggest polluter, has been hammered in recent years by falling electricity prices, with the influx of solar and wind power making coal-fired power stations less economical to operate around the clock .

To recreate value, it plans to split into two companies, renaming its coal-fired power generation business as Accel Energy and splitting its retail arm and renewable energy business as Accel Energy. the name of AGL Australia by June. Read more

“The board is confident that the split will create a strong future for both parts of the business,” Botten said.

It signaled earlier this month that it would accelerate the shutdown of its coal-fired generation by three years to 2045. AGL’s Loy Yang A plant is expected to be the last coal-fired plant in the country to shut down.

($1 = 1.3961 Australian dollars)

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Reporting by Harish Sridharan and Shashwat Awasthi in Bengaluru; Additional reporting by Sonali Paul in Melbourne; Editing by Grant McCool and Stephen Coates

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