Canada's largest independent alternative energy company is circling the wagons to fight off what it sees as an underpriced takeover offer from coal-fired power producer TransAlta Corp.
Canadian Hydro Developers of Calgary wants TransAlta to pay more than the $4.55-a-share offer tabled on July 20, or an alternative bidder to step forward.
In a directors' circular filed yesterday, and on a conference call with analysts, Canadian Hydro made it clear that it thinks the company is worth more. With stock markets recovering, the company ramping up cash flow and carbon-trading markets poised to generate valuable "green" carbon credits from its projects, TransAlta's bid is "opportunistic," the company said.
The 21 wind farms, hydro projects and biomass plants already operating in four provinces - and others in the pipeline - "are simply crown jewels [that] warrant premium pricing, not the discount pricing we see in this offer," said Canadian Hydro chief executive officer Kent Brown.
The firm's board has recommended that shareholders reject the TransAlta offer.
Canadian Hydro has set up a "data room" to help potential bidders get information on its operation and is actively seeking a white knight, Mr. Brown said. "We've had a lot of interest," he told analysts, although he wouldn't say how many potential bidders have kicked the tires, or what kind of alternative deal may emerge.
One possible candidate could be Calgary-based pipeline and energy giant TransCanada Corp., says analyst Ben Isaacson of Scotia Capital.
TransCanada already has some wind and hydro operations, he said, and it is in a position to make even better use of Canadian Hydro's tax losses than TransAlta.
Another possible bidder could be FPL Group Inc., a huge Florida-based utility that is the largest renewable-energy generator in the United States. Its NextEra Energy Resources arm already owns wind farms in Quebec and Nova Scotia.
Mr. Isaacson has also generated a list of six European companies that might be interested in Canadian Hydro. These include GDF Suez, a France-based company with energy projects around the world, and Acciona Energia, a Spanish firm that makes wind turbines and operates international renewable energy plants.
Mr. Isaacson said he thinks TransAlta's initial offer is just a "first step," and that it will likely bump its proposal to around $5 a share. If other potential bidders jump into the fray, the final sale price should be in the $5.50 range, he said.
Analyst Bob Hastings of Canaccord Adams said he also thinks TransAlta will raise its offer, and he foresees the transaction being done at around $5 a share. "I expect TransAlta will end up having to increase its bid."
A TransAlta spokeswoman said yesterday that the company is reviewing the Canadian Hydro director's circular, but "we continue to believe our offer provides shareholders with significant immediate value."
Canadian Hydro shares are trading at about 10 per cent above the TransAlta offer price, suggesting investors expect a higher offer.
Canadian Hydro (KHD-T)
Close: $5.04, up 11¢
TransAlta (TA-T)
Close: $21.25, down 35¢
© The Globe and Mail
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