CALGARY — After months of tussling over hostile bids, Canadian Hydro Developers, Inc. (TSX:KHD) announced Monday it had tentatively agreed to an improved $755 million takeover from TransAlta Corp (TSX:TA).
Calgary-based TransAlta, Alberta’s biggest power generator, will now pay $5.25 per share in cash in a deal that values Canadian Hydro’s stock at just under $755 million. That’s about $100 million more than the earlier TransAlta bid rejected by the smaller company.
TransAlta said the transaction will be funded initially with new credit from the Royal Bank of Canada and later with issues of corporate debt and between $200 million and $300 million of new equity.
The power company said the enterprise value of the bid was about $1.6 billion, more than twice the cash offer for the Canadian Hydro shares.
Enterprise value is a measure of a company’s value, often used as an alternative to traditional stock market capitalization. The measure is calculated as market cap plus debt, minority interest and preferred shares minus total cash and cash equivalents.
TransAlta had originally bid $4.55 per share for each of Canadian Hydro’s 143.6 million shares in July and stuck with that price despite the opposition of Canadian Hydro’s board, which said the offer was too low, and the apparent arrival of at least one higher bid from an unidentified rival.
TransAlta, which is highly dependent on coal-fired generators for its electricity production, sees the acquisition as a way to increase its presence in wind and other renewable sources of energy.
Canadian Hydro produces wind, hydroelectric and biomass energy.
The boards of both companies said Monday that they support the deal and for the first time, Canadian Hydro is encouraging its shareholders to accept the offer.
“We believe the revised offer from TransAlta provides our shareholders with a premium and liquidity,” said Dennis Erker, chair of Canadian Hydro’s board.
TransAlta president Steve Snyder said the two companies combined were well positioned to become a North American leader in renewable energy.
“We believe this transaction delivers certain and fair value to Canadian Hydro shareholders while providing TransAlta shareholders with both near and long-term value,” said Snyder.
“It also accelerates the expansion of TransAlta’s renewable portfolio and will open the door to new and exciting opportunities for employees of both companies.”
TransAlta, which has been trying to add some green assets, had said previously that Canadian Hydro faced financing challenges as a stand-alone company and would be better off under the wing of a bigger entity.
To counter that argument, Canadian Hydro boasted earlier about the completion of two new wind farms in Ontario that have doubled the size of the company.
Last week, the firm also announced it had agreed to purchase an offshore 4,400-megawatt wind prospect in Lake Erie from Utah-based Wasatch Wind Inc. Financial terms were not disclosed.
Canadian Hydro Developers currently operates 694 megawatts of wind, hydro and biomass power plants in Alberta, Ontario, Quebec and British Columbia. It also has 252 megawatts of advanced development projects in western and eastern Canada.
Combined, TransAlta and Canadian Hydro Developers would have net generation capacity of 8,657 megawatts in operation, primarily from coal-fired plants. The renewables portfolio would include 1,900 megawatts.
TransAlta shares fell five cents to $21.07 while Canadian Hydro shares rose 21 cents to $5.22 in early trading Monday on the Toronto stock exchange.