American hedge funds make $7.8 billion bid for Canada's largest power utility

23 July 2008

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.