Canada's largest public utility, Calgary-based TransAlta Corp could go private if a $7.8-billion takeover bid from a group of private US equity funds is successful.

The American group that includes Luminus Management LLC, the New York hedge fund that recently made an unsuccessful run at TransAlta, has asked the company to consider an offer representing C$39 a share, which was a 21 per cent over the closing price of C$32.25 on Friday. Global Infrastructure Partners is the other interested party. (See: Text of the letter sent to the CEO of TransAlta, and filed yesterday morning with the US Securities and Exchange Commission by LS Power)

Following the announcement, shares in TransAlta, which runs coal- and gas-fired power plants and renewable energy facilities in Canada and the US, surged
C$4.40, or 14 per cent, to C$36.65 on the Toronto Stock Exchange on Monday. Taking the equivalence of the Canadian and American dollars into account, the bid value is around $7.8 billion.

Luminus is TransAlta's biggest shareholder and a major player in the US power industry. LS Power Equity Partners, its electricity arm, has a long track record of developing substantial new generation capacity in the country.

It has raised more than $10-billion in debt and equity since 2005 to fund acquisitions and construction, and is currently building new power plants across the US that will generate almost 10,000 megawatts of electricity.

Luminus, which already holds 9 per cent of TransAlta, would do the deal through LS Power and Global Infrastructure Partners, whose founders include Credit Suisse and General Electric. Financing through $6 billion of equity and $2 billion in debt is likely.

The proposed bid comes just months after Luminus publicly attacked the management of TransAlta CEO Steve Snyder, who favours building new facilities to replace the company's aging coal plants.

Luminus instead pushed for a more aggressive strategy of taking on debt for acquisitions while returning cash to shareholders, but failed to attract support from other investors.

It dropped its proxy fight in March, saying it was pleased with moves by TransAlta to boost value, including selling its Mexican operations and raising its dividend.

"We have had a dialogue - frankly a healthy and ultimately constructive dialogue - we learned more of [the] complexities and issues that translate around a public company, we grew to appreciate management's approach to executing strategy," LS Power president James Bartlett added yesterday.

In tune with the changed tone, LS Power intends to retain the existing management of TransAlta even after acquisition, including CEO Snyder who they had earlier criticized.

"We have a great deal of respect for TransAlta, its employees, its Board of Directors, its management team led by Steve Snyder, and its heritage. Furthermore, we have confidence in the underlying value proposition that TransAlta's business provides," added Bartlett. "To that end, we believe that our proposal for TransAlta provides shareholders with compelling value. It also provides continuity for the company's customers, employees, management and communities where it operates."

TransAlta, best known for its large coal-fired power plants in Alberta and Washington state, said its board formed a special committee to evaluate the proposal and respond to shareholders. It said investors need not take action now.

"What Luminus, or LS Power, has put forward is not an offer to buy TransAlta but rather a nonbinding, highly conditional, invitation to discuss a potential transaction," spokesman Michael Lawrence said.

TransAlta Corporation's operations include 50 power plants that generate 9,000 megawatts of power in Canada, the US and Australia. The company produces power using wind, coal, natural gas, hydro and geothermal. In 2007 it reported a profit of $308.8 million on revenues of $2.77 billion.

New York-based LS Power Equity Partners is a private developer, investor and asset manager with power facilities across the US that generate 7,000 megawatts of power from coal, gas, solar and wind. With its partners, it owns about 9 per cent of TransAlta's stock.

The other interested party for the acquisition of TranAlta is Global Infrastructure Partners is a private $5.64 billion fund that invests in infrastructure companies and assets around the world, including emerging market countries; it has a stake in the London City Airport. Based in Stamford, Connecticut, it is led by Adebayo Ogunlesi, chairman and managing partner.

(See: Text of the letter sent to the CEO of TransAlta, and filed yesterday morning with the US Securities and Exchange Commission by LS Power)