As they stalk utility Canadian Hydro Developers, the leaders of TransAlta need to realize that the credit crunch is over.
For months, TransAlta has been trying to strike a friendly merger with one of the country's largest players in renewable energy.
The courtship began back in December, with Canadian Hydro stock trading around $2 a share. That depressed price reflected understandable concerns that the utility wouldn't be able to borrow the money it needed to develop wind farms and hydro stations. TransAlta, a major player in coal and natural-gas-powered plants, offered the security of a strong balance sheet at a time when capital markets were all but closed.
To their credit, Canadian Hydro's board and managers had the guts to turn down TransAlta, reasoning that markets would eventually calm down and green power would come back into vogue. It was the right call: Utilities can now borrow, and Canadian Hydro's stock price perked up as investors realized power projects in British Columbia, Alberta, Manitoba and Saskatchewan could get the cash they needed to start producing juice.
This change in fortune cost TransAlta an opportunity to buy on the cheap. With Canadian Hydro stock back up to $3.50, TransAlta decided it had to act, and swooped in with a $4.55-a-share cash bid, worth $654-million.
In conference calls meant to sell their hostile, $654-million offer to investors, TransAlta executives spent more time talking about eliminating the financial risks that come with developing Canadian Hydro's projects than they did on the premium they were offering.
These generals are still fighting the last war. While it won't be easy, Canadian Hydro is now quite capable of raising capital on its own.
TransAlta and its advisers - Goldman Sachs and RBC Dominion Securities - face the daunting proposition of winning over a rival that's become fixated on staying out of its clutches. Canadian Hydro hired FirstEnergy Capital and Société Générale to scare up better offers.
"Although this course of action is riskier than attempting to negotiate a friendly transaction with TransAlta, we believe it increases the probability of receiving a higher offer," said a report from BMO Nesbitt Burns analyst Michael McGowan.
Now, market dynamics work against TransAlta. The utility has said it will sell up to $300-million of shares to fund its bid, and the possibility of an equity offering will overhang shares until this drama is done. TransAlta is now the utility with the moribund stock price.
The talk on trading desks is that it will take somewhere between $5.50 and $6 a share to win a friendly deal between Canadian Hydro and either TransAlta or a white knight. That's three times the price TransAlta hoped to pay when it kicked off takeover talks during the worst days of the credit crunch.
Sale seen for mining junior
There's a widespread expectation that a takeover is coming at Athabasca Potash. There are also warnings that this junior mining play is set to tumble if a deal doesn't play out in coming weeks.
Athabasca Potash shares have soared sixfold in recent months, valuing the company at $225-million, after a strategic review on how to best develop a Saskatchewan property was expanded recently to include a possible sale of the company. CIBC World Markets and Genuity Capital Markets are advising Athabasca on its options, and the stock price has been rising steadily since March, taking wing this month on the revelation of takeover overtures.
The runup led BMO Nesbitt Burns analyst Joel Jackson to take a cautionary stance last week, as the share price soared though $6. "Athabasca Potash has actively sought partners and acquirers for some time as the task of financing a conventional two-million-tonne potash mine, expected to cost at least $2.5-billion (U.S.), is no small order," Mr. Jackson said. "The near-term risk to the stock is that the share price has gotten ahead of itself."
Street goes to bat for kids
There's not a rich tradition of winning Chicago baseball teams, with the Cubs' last World Series parade now more than a century ago.
However, sluggers from the Windy City rolled over the locals earlier this month as the 13th edition of the Bay Street Children's Foundation Pro Celebrity Softball Challenge played out in Toronto.
The team fielded by E*Trade and Citadel Investment Group won the two-day event, raising $175,000 for charity in the process. It's the third year in a row that a foreign team has won the softball tournament. And while there are some heavy hitters on the Street, the real muscle at the plate comes from NHL veterans such as Clark Gillies and Mark Napier, who have been long-time supporters.
Over the years, this foundation has raised over $1.75-million (Canadian) for charities such as Bloorview Kids Rehab centre.
© The Globe and Mail
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