AGL Energy board gambling with other people’s money

The Australasian Centre for Corporate Responsibility​ (ACCR) is commenting on the decision by the AGL Energy (ASX:AGL) board to reject a second bid from the Brookfield consortium of $8.25.

According to ASX disclosures, the directors of AGL have failed to match their view of the company’s worth with personal investment in the company.

• CEO Graeme Hunt has been paid $3.7m in the 9.5 years he's been on the board, but has spent just $234,550 of his own money on purchasing AGL shares, which are now worth ~$92,000 (he was awarded 17,975 shares in August 2021 and 297,374 shares in October 2021 at nil cost as an incentive);
• Graeme Hunt last purchased AGL shares on 10 September 2018 at a price of $19.66;
• Chair Peter Botten last purchased AGL shares on 1 September 2020 at a price of $14.84;
• Other than Graham Cockroft who only joined the board on 1 January 2022, and Jacqueline Hey who acquired a small number of shares via the dividend reinvestment scheme, no other director has purchased AGL shares since 1 September 2020;
• From its high of $27.61 in May 2017, AGL has fallen ~73% to Friday's close of $7.43 (excluding dividends), which was well below the second Brookfield bid of $8.25;
• The base fee for AGL directors is $201,000 p.a., and many investors accept the rule of thumb that directors should have a minimum of one years’ fees invested in the company.

Dan Gocher, Director of Climate & Environment at the Australasian Centre for Corporate Responsibility (ACCR) said:

“By rejecting a second bid of $8.25 per share, the board of directors is gambling other people’s money that the planned demerger represents better value for shareholders.

“AGL directors have consistently failed to invest their own money in the company, according to ASX disclosures.

“If the AGL directors believe the company is worth $9 or $10 a share, why on earth haven’t they been buying the stock, when it’s trading around $7.40?

“CEO Graeme Hunt has claimed that the Brookfield consortium should be offering a 30% premium to the current share price.

“If Hunt genuinely believes the company is worth that much, why has he not spent his own money on AGL shares since September 2018, despite receiving millions in remuneration since?

“Only Graham Cockroft, who joined the board in January, has purchased stock on-market since AGL fell below $10.

“The board of AGL has overseen a catastrophic decline in the share price of more than 70% since its highs in 2017. The board has watched like a deer in headlights at the erosion of the share price.

“The current directors have fundamentally mismanaged the energy transition, yet are asking shareholders to ‘trust them’ on the demerger. Shareholders should rightly be skeptical.

“The lack of ‘skin in the game’ from AGL directors suggests that institutional investors and retail shareholders are bearing the cost of the board’s poor decision making.”

Background

Chair and CEO holdings compared to AGL Energy share price, 2012-22

*Excludes Graeme Hunt’s performance rights awarded at nil cost

AGL Energy directors shares held and fees paid, 2012-22

Trades by AGL Energy directors, 2012-22

*Awarded at nil cost as part of CEO package

**Transfer of holdings