TransAlta
TransAlta is a power generation and wholesale marketing company. The company maintains a low-risk profile for investors by operating a highly contracted portfolio of assets in Canada, the U.S., Mexico, and Australia. Our focus is to efficiently operate our coal-fired, gas-fired, hydro, and renewable facilities in order to provide our customers with a reliable, low-cost source of power.
TransAlta has been in the power business for almost 100 years, and supplies 9000 Megawatts of power from five power plants.
TransAlta mulls over $7.8bn bid from L S Power.
LS Power Equity Partners (LS Power) and Global Infrastructure Partners revealed on Monday, July 21, 2008 that it has made a bid to buy Canadian energy giant TransAlta Corp. (TransAlta) (TA; NYSE:TAC; www.transalta.com) for $39 a share, valuing the company at around $7.8bn. The bid, should it go through the regulatory process, would amount to a 21 per cent premium over the closing price on July 18, 2008. TransAlta’s stock surged some 14 per cent on the news of the bid to $36.65. In early trading on 23 July, 2008 TransAlta stock was down $0.06 at $36.91 (52 wk high: $38.10; 52 wk low: $27.06.
The U.S. bidding partners for TransAlta are both private companies and LS Power is affiliated with Luminus Management LLC (Luminus); together the two companies already own around nine per cent of TransAlta’s stock. According to media reports LS Power and Global Infrastructure is owned by Credit Suisse and General Electric. Funding for the bid should bypass the credit crunch with funding reportedly coming as $6bn in equity and a C$2bn debt facility from Credit Suisse; Luminus has been reported as attempting to load the TransAlta board with its own nominees earlier in the year, a process it apparently abandoned in March 2008.
TransAlta is best know for its coal fired power generation in Alberta and currently supplies approximately 45 per cent of the boom town province’s electricity; the company is also a firm supporter of the Alberta government’s carbon capture plans.
TransAlta and Alstom Canada entered into an agreement in April 2008 to develop a carbon capture storage (CCS) facility in Alberta that will probably use Alstom Canada's proprietary chilled ammonia process. "Once operational, TransAlta's CCS project is expected to have a major impact on greenhouse gas emissions, reducing our current CO2 emissions by one million tonnes per year by 2013 while continuing to provide affordable electricity for Albertans," said Steve Snyder, TransAlta's president and CEO. Whether the bid will upset or change the CCS plans remains to be seen.
Understandably, Alberta premier Ed Stelmach would have been surprised at the turn of events, "It's of concern. If I remember correctly, TransAlta is about 45 per cent of our electrical generation in this province, so we're watching this carefully and I know that the minister of energy as of just a few hours ago is getting further information about the possible takeover bid," Stelmach told reporters. Right now both sides of the bid are playing nice and the bidding partners have expressed the desire to leave what “isn’t broke,” alone in terms of management and in what TransAlta are doing.
Alberta is not usually known for wielding the regulatory whip and despite the government’s concerns, on the face of it, this deal could go through and analysts are reported as saying that the price is fair, the shareholders are getting a fair price, and, yes, TransAlta will be foreign owned but that’s not a new thing either.
All in all then is this a virtual done deal? No.
There are reasons which could possibly turn a somewhat friendly takeover into a bidding war. On July 22, 2008 Seneca Capital (Seneca), which owns around three per cent of TransAlta stock, published a letter that it wrote to TransAlta’s board urging the company to look at alternatives calling for the board to, “immediately review alternatives to maximize shareholder value, including but not limited to an auction for sale of the company, a strategic partnership or a restructuring of the company's long-term power contracts, to unlock the company's substantial unrealized value for all shareholders.” Simply put, Seneca thinks TransAlta is undervalued. The reasoning behind this in part, Seneca says, is that 40 per cent of TransAlta’s generation capacity is locked into long-term contracts at prices it estimates to be around $30/mwh (megawatt hour) when the market price is around $80/mwh. Not surprisingly, as these contracts roll off then cash flows will be increased dramatically. Seneca also says that it believes there, “is a mis-match between earnings and recurring free cash flow per share.” The bidding partners for TransAlta would know this and whether it was expected that the cat would come out of the bag is unknown. But the cat is out and an organization with a substantial stash of cash could up the ante for such an asset as TransAlta.