CALGARY — A prolonged stalemate in TransAlta Corp.’s (TSX:TA) battle to take over green energy producer Canadian Hydro Developers Inc. (TSX:KHD) appeared to have finally ended Monday, with the two Calgary-based firms reaching a tentative agreement on a $755-million deal.
The $5.25-per-share offer marks a more than 15 per cent improvement to TransAlta’s original $654-million hostile bid for Canadian Hydro, which has wind, hydroelectric and biomass-fired plants across Canada.
The boards of both companies said Monday 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, in a statement.
TransAlta needs to acquire at least two-thirds of the outstanding Canadian Hydro shares in order for the sweetened offer to be successful.
TransAlta made its initial $4.55-per-share overture in July but was staunchly rebuffed by its target on the grounds the offering was “inadequate” and “opportunistic.”
Alberta’s biggest power generator extended its offer four times, without sweetening it, until finally giving ground on Monday.
TransAlta, which is highly dependent on coal-fired generators for its electricity production, has been on a quest to beef up its green portfolio with environmental regulations expected to become increasingly stringent.
TransAlta chief executive Steve Snyder said the two companies combined are 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.”
Renewables will make up 22 per cent of the combined company’s portfolio, with 1,900-megawatts in operation. There are also 543-megawatts under construction and nearly 500-megawatts in advanced-stage development.
Canadian Hydro, which opened up its books to potential white-knight bidders in response to TransAlta’s hostile pursuit, had said it was entertaining several proposals.
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 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.
TransAlta shares rose three cents to close at $21.15 while Canadian Hydro shares rose 22 cents to close at $5.23 in trading Monday on the Toronto Stock Exchange, with a huge volume of nearly 25.3 million shares traded.