May 20, 2022

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Why has the AGL share price rocketed today?

Shares in electricity giant AGL Energy were down nearly 30% in the last 12 months before today’s surprising news.

Electricity giant AGL Energy (ASX: AGL) is among the most traded stocks on the ASX on Monday. Shares in the company, which had been losing ground heavily over the last year, have shot up more than 11% to $7.98 in early trading.

Why is the AGL stock price surging?

Sentiment in AGL Energy’s stock price has turned around following Sunday’s stunning takeover bid from tech billionaire Mike Cannon-Brookes and Canada’s Brookfield Asset Management that valued the company at around $8 billion.

On Monday, AGL’s board rejected the $7.50 a share takeover bid, which represented a 4.7% premium to the company’s closing price last week.

“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 in a statement to the ASX.

“Under the unsolicited proposal the board believes AGL Energy shareholders would be forgoing the opportunity to realise potential future value via AGL Energy’s proposed demerger as both proposed organisations pursue decisive action on decarbonisation.”

However, investors and analysts remain certain there will be an improved offer.

Despite the pushback, Mike Cannon-Brookes said the bidders would continue to engage with AGL Energy’s board.

“We’ll continue to move forward. We think obviously the bid has significant value for shareholders and is a far better option than the alternate path which is the demerger that’s on the table from the point of view of risk and the point of view of shareholder value. So we’ll continue to work with them on that,” he told ABC radio on Monday.

Green shift

Under the takeover offer, the 180-year-old electricity company’s goal of net zero emissions would be brought forward by 12 years to 2035. The bidders, if successful, pledged to close and replace AGL’s coal-fired power plants, Bayswater in New South Wales and Loy Yang in Victoria, by 2030.

AGL accounts for more than 8% of Australia’s annual emissions.

Market sentiment has been subdued in the stock over the planned demerger of the company. Under the plan, AGL Energy will split into a new company AGL Australia and a new coal-focused generator, Accel Energy.

The company has been under pressure to remodel itself amid the challenges of lower power prices and an accelerating transition to renewables. Last week, it posted a 41% slide in half year underlying profit to $194 million, prompting it to slash the dividend. It had reported a massive $2 billion full year loss in FY21.

But the utility has come under fresh pressure since rival Origin Energy (ASX: ORG) last week announced it would close down its Eraring coal-fired power station in New South Wales by 2025, 7 years ahead of schedule.

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