TransAlta makes hostile $589M takeover bid for Canadian Hydro Developers

Calgary, Alberta-based TransAlta (NYSE:TAC) said today it plans to make an all-cash offer to acquire all the outstanding shares of Calgary-based Canadian Hydro Developers (TSX:KHD).

If successful, the hostile takeover bid would make TransAlta the largest publicly traded renewable energy provider in Canada.The proposed transaction has an enterprise value of about C$1.5 billion ($1.36 billion). The offer has an implied deal value of about C$654 million ($589 million) based on 143.7 million shares outstanding as of May 13, 2009, according to Reuters.

TransAlta wants to use the purchase, being made through an acquisition entity at C$4.55 ($4.11) per share, to accelerate and expand its renewable energy portfolio, said TransAlta’s CEO Steve Snyder, in a conference call this morning.

Canadian Hydro’s stock shot up 32.33 percent, at C$4.83, in trading Monday afternoon, while TransAlta’s stock was down 0.53 percent, at C$18.77.

TransAlta's offer represents about a 30 percent premium to the volume weighted average price of Canadian Hydro’s common shares for the past 10 trading days and a 25 percent premium to Canadian Hydro’s Friday closing price.

“This offer provides their shareholders with significant, immediate and certain value for their company’s existing assets, as well as its future growth potential,” Snyder said.

TransAlta expects to initiate the offer on July 22, which would expire on Aug. 27, unless extended or withdrawn. The offer is expected to be subject to acceptance by at least 66.67 percent of Canadian Hydro’s common shareholders and would also need to meet regulatory approvals.

An investor presentation of the offer is expected to be available here.

The combined companies would have net generation capacity of 8,657 MW in operation. The renewables portfolio would include 1,900 MW in operation, or 22 percent of the combined portfolio. The two companies have 572 MW under construction and more than 600 MW in advanced-stage development, according to TransAlta.

TransAlta has a pipeline of renewable energy growth projects underway including three wind projects totaling 200 MW under construction, which Snyder said are expected to be online by 2009, 2010 and 2011, respectively (see TransAlta to add 66MW to Alberta wind farm, TransAlta adds another wind project in Alberta and TransAlta, Alstom to develop CCS project in Alberta).

TransAlta has taken over Canadian Hydro’s assets in the past. In 2007, TransAlta bought Vector Wind Energy, a subsidiary of Canadian Hydro, for its Fairfield Hill wind power site (see TransAlta increases Canadian wind farm plan).

TransAlta said it first approached Canadian Hydro in late 2008 regarding the takeover, and has proactively been in conversations since then. But over the following seven months, a negotiated “friendly” deal couldn’t be achieved, Snyder said. Canadian Hydro wanted to remain a stand-alone company, according to TransAlta.

Instead, TransAlta made today's proposed offer directly to Canadian Hydro shareholders. Snyder said the acquisition would include some synergies, more likely to occur in administration, rather than operations or development.

“History and experience have taught us that larger well-capitalized enterprises have an important advantage both in surviving and in sourcing capital to fund continued growth and expansion,” he said.

Canadian Hydro operates 694 MW of wind, hydro and biomass facilities in Alberta, Ontario, Quebec and British Columbia, as well as 252 MW of advanced-stage development projects in western and eastern Canada. The company has more than 15 analysts covering its stock (see IPO drought? Cleantech companies flood Canadian markets).

Snyder said financing for the offer is in place. The transaction is expected to be funded initially with new committed bank facilities, which combined with existing credit facilities and internal cash would provide sufficient funding to pay for all the outstanding shares of Canadian Hydro, Snyder said.

This initial funding would be replaced with permanent long-term funding in the debt capital markets, underpinned by raising an additional $250 million to $300 million of equity, Snyder said.

“Based on this approach, we expect the rating agencies will confirm TransAlta’s current investment grade credit ratings,” Snyder said.

In 2008, TransAlta received an offer from its largest shareholder to take the company private in a deal worth $7.8 billion. New York's LS Power Equity Partners teamed up with Global Infrastructure Partners, also based in New York, for the C$39 per share offer (see TransAlta gets $7.8B buyout offer and Takeovers, buyouts and bankruptcy). TransAlta later rejected the proposal saying the deal undervalued the company.

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