AGL Energy (AGK)

By Jason Fittler

Australia’s competition watchdog cleared the way for AGL Energy (AGK) to fully acquire the Loy Yang, a power station in Victoria and launch a $900m share issue to help fund the deal.

The Australian Competition and Consumer Commission said AGL’s acquisition of the 67.5% of the coal-fired power station that it doesn’t already own is unlikely to substantially reduce competition in electricity generation and retail markets.

The Australian utility in February agreed to buy the stake for $448m. It includes Tokyo Electric Power’s holding of 32.5% and minority interests held by pension funds.

The deal gives the asset an enterprise value of $3.1bn including its heavy borrowings. AGL has already executed a $650m issue of subordinated notes to help fund the deal. It will issue new AGL shares at $11.60 each to raise $900m through institutional and retail entitlement offers. AGK remained unchanged at $14.93.

The equity raising will be a fully underwritten 1:6 pro-rata renounceable entitlement offer at A$11.60 per new share, a 22.3% discount to last close and a 19.7% discount to the theoretical ex-rights price.

AGL Energy also indicated the full year 2012 final (fully franked) dividend will be 32cps and reaffirmed full year 201212 profit guidance of A$470–500 million.

We will be participating in the right issue given the discount to the current price and the gross dividend yield of 5.7%.

Our valuation on this company is $17.50 as such we expect to see good growth over the long-term.

For more information on AGL Energy (AGK) please contact us on 07 4771 4577.