Brookfield Asset Management Voting Ord Shs Class A T.BN.PF.G

TD

[retiredcf]

Currently have it on their Action Buy List with a US$79.00 target. GLTA

Brookfield Asset Management Inc.

(BAM-N, BAM.A-T) US$53.20 | C$67.91

First Potential Large Investment of Transition Fund Announced Event

BAM, with local partner, Grok Ventures, has announced a take-private bid for AGL Energy Ltd., which, if successful, would constitute the first major investment in the inaugural Global Transition Fund.

Impact: POTENTIALLY SLIGHTLY POSITIVE

• The transaction is not material to BAM, but we believe that it offers a template for the Global Transition Fund's mandate. BAM and Grok have bid for AGL, the largest integrated power-generation and energy retailer in Australia. The bid offers A$7.50/share, which corresponds to an equity value of ~A$5bln/enterprise value of A$7.9bln (EV/EBITDA multiple of 5.8x and 5.3x, based on 2022E and 2023E, respectively). AGL has rejected the proposal, arguing that it does not offer a sufficient control premium, which will likely prompt BAM/Grok to make their pitch directly to investors. The BAM/Grok proposal contemplates fast-tracking the closure of AGL's coal-fired power stations, and investing ~$20bln to develop ~7MW-9MW of green replacement capacity, consistent with BAM's considerable renewable power expertise. The equity consideration offered is in cash, with up to 20% in equity of the acquiring vehicle, and we anticipate that BEP will fund the Brookfield commitment (~25-30%). The AGL share-price has already traded through the BAM/Grok offer price.

• AGL has proposed to split itself into two companies: 1) AGL Australia, which would own the power, gas and telecommunications retail business, as well as some cleaner power-generation assets and 2) Accel, which would hold AGL’s coal- and natural-gas-fired power generation (~8% of Australia’s overall emissions). BAM/Grok intend to accelerate AGL's exit from coal-powered generation to 2030, ~15 years earlier than currently contemplated, and argue, not unreasonably, that the demerged company may not have sufficient access to capital to make the transition to clean power.

• BAM's Global Transition Fund is expected to hold a final close on $15bln soon, establishing BAM as a first mover in an emerging vertical, with the aim of generating strong risk-adjusted returns and meaningful decarbonization, across two major focus areas: 1) adding clean energy to the electricity grid on behalf of corporate clients and 2) providing energy/decarbonization solutions to businesses/governments, with a focus on energy-intensive sectors, such as steel/ cement/chemicals and utilities.