True, there is no shortage of colour and movement at AGL, backed up with oodles of cash and takeovers left, right and centre.
But the questions occupying the minds of a lot of casual observers are what shape is AGL taking on – and at what price?
Anthony, who prides himself on being an agent of change, would undoubtedly argue that AGL is being forged into Australia’s dominant supplier of energy, both gas and perhaps electricity.
It wouldn’t surprise Slugcatcher that Anthony also has ambitions to add other forms of energy. Perhaps one day the company will have a liquid fuels arm, and maybe even a small nuclear power station somewhere on Australia’s east coast.
Slugcatcher tosses in those last two suggestions merely to make the point that AGL today is dramatically different to what it was for the first 100 years of its life, and it will be even more different in a few more years.
Until recently AGL was a benign retailer of gas to customers in and around Sydney. Then it extended its reach up and down the east coast as it added electricity to its product mix.
Last year, expansion moved into overdrive when AGL became embroiled in a complex takeover/merger/asset swap manoeuvre with Alinta, a rival gas/electricity business with its roots in WA, but with extensive interests in eastern states.
This year, the expansion game has moved into hyper-drive with AGL first proposing a merger with another rival, Origin Energy – and then regressing into a form of verbal fisticuffs.
And to top it off, AGL appears to have emerged as the winner in the long-running battle for control of the coal seam methane producer, Queensland Gas, and has acquired Queensland business Powerdirect.
Slugcatcher’s calculator doesn’t have enough numbers on it to work out precisely what AGL under Anthony has spent in creating an Australian energy giant, but it certainly runs into billions of dollars. The Origin deal alone, if it proceeds, could cost $8 billion, or more.
But, as with past periods of rapid expansion in the Australian energy sector, there is this nagging issue of value – or to cut to the core issue, is AGL paying too much to achieve its grand expansion plan?
The main reason price (and its close cousin, value) crept into Slugcatcher’s thinking was a small item he noted in a national newspaper last week about AGL’s $1.3 billion purchase of Powerdirect.
According to the very well-sourced Chanticleer column in the Australian Financial Review, AGL’s $1.3 billion purchase of Powerdirect was at a price some $500 million more than the next nearest bidder who valued the same asset at $800 million.
Call Slugcatcher old-fashioned but whenever he sees someone dramatically over-bidding for an asset, whether it’s a house or an oil field, he knows that it will take a lot longer than planned to generate value from the deal.
Yes, AGL will hack and slash at costs, just as it has done away with 1000 jobs in its own operations.
But the last time Slugcatcher saw such a divergence of values was when the WA Government sold the Dampier-Bunbury natural gas pipeline for around $2.4 billion, when the next nearest bid was rumoured to be $1.8 billion – and the consequences were years of instability in gas supplies as the new owner struggled to get the prices needed to justify the enormous price, and industry in WA was threatened with gas shortages.
Value is the challenge for AGL. It is winning its takeover battles by throwing a cheque book at deals. In time, the shareholders will be asking whether the price paid has left them with any value in the acquisitions.
