TransAlta Corp., the Calgary-based electricity generating and trading firm that is Canada's largest investor-owned utility, has rejected a $7.8-billion proposal to take the company private by a group of New York-based private equity firms, saying the deal undervalues the company (See: American hedge funds make $7.8 billion bid for Canada's largest power utility)

TransAlta said its board of directors unanimously decided the conditional offer of C$39 a share was too low and that talking to funds LS Power Equity Partners and Global Infrastructure Partners (LSP-GIP) was not in the best interest of the company or its shareholders.

Analysts, however, say TransAlta is likely still in play, either through its own discussions or a revamped, sweetened offer from the New York suitors, who are closely allied with former TransAlta foe and activist investor Luminus Management LLC.

"We respect both LS Power and GIP, but their highly conditional approach fails to recognize TransAlta's fundamental value and growth potential," chairwoman of TransAlta's board Donna Soble Kaufman said in a statement released after markets closed Wednesday.

"Accordingly, the board of directors has determined accepting their invitation to engage in a dialogue about a possible acquisition of the company is not in the best interests of TransAlta and its shareholders," she added.

LS Power and Global Infrastructure, which own 9 per cent of TransAlta's shares, announced their plan to take over the company on 22 July, saying the stock has lagged despite efficient operations and strong finances.

LS Power made the approach just four months after an affiliated investor, Luminus Management LLC, dropped a campaign to control TransAlta's board in hopes of getting the company to load up on debt to fund major stock buybacks.

Days after the bid, another TransAlta shareholder, Seneca Capital, urged the board to consider several alternatives for extracting value, including putting the company up for sale.

Although TransAlta president and chief executive Steve Snyder declined to comment on the proposal - even during the release of second-quarter earnings 31 July - his remarks clearly conveyed the message that the company and its board felt it was on the right track and the LSP-GIP proposal would be rejected.

In that regard, TransAlta's improved second-quarter earnings released last week followed the best fourth-quarter and full-year results for the company in its 100-year history in February.

The rejection certainly wasn't surprising to many observers, however it is seen by most as the end of one chapter in a longer running story about TransAlta's future as an independent firm.

TransAlta shares fell 3 Canadian cents to C$36.58 on the Toronto Stock Exchange on Wednesday. The shares have risen 26 per cent over the past 12 months. (One American dollar is equal to 1.05 Canadian dollars)