Yesterday was a momentous occasion for anyone opposing the demerger of AGL Energy Limited (ASX: AGL), even if the share price dipped to the downside.
For those who missed the headlines, the energy giant revealed that it would not proceed with its proposal to break the company into two parts. Instead, AGL will conduct a strategic review to decide what is the best course of action to take next.
The wooden stake through the demerger’s heart follows months of pressure from tech billionaire Mike Cannon-Brookes. In short, the Atlassian Corporation Plc (NASDAQ: TEAM) co-founder believed the best decision would be for AGL to remain whole and adopt a more ambitious path toward decarbonisation.
But, considering the AGL share price slipped on the news, is staying as one company the right move?
Why one AGL on the ASX is better than two
As a new day dawns on the AGL share price, the company’s shares are clawing back from yesterday’s losses. At the time of writing, AGL shares were trading at $8.74 apiece, up 0.23%.
Today, Monash Energy Institute director Professor Ariel Liebman explains the merits of yesterday’s decision.
Amid skyrocketing coal and gas prices, Liebman notes the decision to keep AGL together is a ‘great outcome’. Importantly, he says, it gives the company the best chance to prioritise a shift to renewables.
Leibman states:
This bodes well for consumers as it will accelerate the move away from ageing and unreliable fossil assets that are increasingly resulting in higher wholesale prices, as seen in the last few weeks. Failing coal-powered generators owned and managed by energy companies are one of the drivers of recent electricity price hikes, as the price of electricity generation increases due to the reduction in electricity supply while such fossil stations are being repaired.
In the last week, the fragility of fossil fuels to sudden changes in supply and demand has been demonstrated.
Roughly 7% of the east coast’s commercial and industrial gas customers hang in the balance after Weston Energy ceased operations. The gas retailer ground to a halt as it was no longer financially capable of dealing with the 180% price increase in its supply.
Similarly, Liebman points out that the ‘new’ ASX-listed AGL would not have been able to fund its foray into renewables. The sustainable energy systems professor said:
If the demerger had gone ahead the so-called “New AGL” (AGL Australia) would have been unable to invest in large renewable energy generation projects and conversely the stand alone and mostly generation-heavy entity, Accel Energy, would have had an incentive to keep their coal and gas generators operational to maximise shareholder value.
Out with the old, in with the new
Coinciding with the ditching of demerger plans, the board will be getting a new look. According to yesterday’s release, the board has commenced a search process to find replacements for the chair, CEO, and two directors.
Shareholders might be hoping for ASX-listed AGL to gain more renewable energy-focused board representation from this process. There is the possibility that Mike Cannon-Brookes will be seeking out spots for nominees of his own.
Lastly, the AGL share price is up 7.1% over the past year. Despite all the noise, the company has outperformed the S&P/ASX 200 Index (ASX: XJO) on a trailing 12-month basis.
The post Why the decision to keep AGL as one makes sense: expert appeared first on The Motley Fool Australia.
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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