U.S. firms propose $7.8 billion takeover of Canada utility

LS Power Equity Partners and Global Infrastructure Partners announced they plan to buy Canada-based international utility TransAlta Corp. for C$7.8 billion (US$7.75 billion).

The U.S.-based firms announced July 21 they had approached TransAlta with a non-binding proposal to acquire the company’s shares for C$39 each (US$38.76), a 21 percent premium over its closing price on July 18.

TransAlta owns power plants in Canada, the U.S., and Australia totaling about 8,000 MW; another 540 MW is under development. The company’s holdings include 13 hydropower plants in Canada ranging from 3 MW to 355 MW, all in Alberta: 13-MW Barrier; 17-MW Bearspaw; 120-MW Bighorn; 355-MW Brazeau; 36-MW Cascade; 51-MW Ghost; 14-MW Horseshoe; 5-MW Interlakes; 19-MW Kananaskis; 15-MW Pocaterra; 50-MW Rundle; 103-MW Spray; and 3-MW Three Sisters. It also owns two U.S. hydro plants: 1-MW Skookumchuck in Washington and 10-MW Wailuku in Hawaii.

LS Power is affiliated with Luminus Management LLC; the firms already own 9 percent of TransAlta stock. Earlier this year, Luminus campaigned to stack TransAlta’s board with its own nominees in a bid to get the company to load up on billions of dollars of debt to fund major stock buybacks. Luminus dropped its proxy fight in March, saying it was pleased with TransAlta’s moves to boost value, including selling Mexican operations and raising dividends.

LS Power President James Bartlett said he wants to keep the Calgary-based company’s management in place.

Despite U.S. credit woes, financing is not a concern for LS Power and Global Infrastructure, which is owned by Credit Suisse and General Electric, Bartlett said. The transaction would be funded with C$6 billion (US$5.96 billion) of equity, and a C$2 billion (US$1.99 billion) debt facility from Credit Suisse, he said.

Bartlett also said he does not foresee opposition from the Canadian government over foreign investment concerns.

TransAlta said its board formed a special committee to evaluate the proposal and respond to shareholders.

If TransAlta can attract a white knight, perhaps a private equity or pension fund investor, a bidding war could erupt, Desjardins Securities analyst Daniel Shteyn said.

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