July 20, 2009 / 2:24 PM / 8 years ago

UPDATE 2-TransAlta makes unsolicited bid for Canadian Hydro

* TransAlta offers C$4.55 for each Canadian Hydro share

* Offer implies a deal value of about C$654 million

* Canadian Hydro shares jump 38 pct (Recasts, adds dateline, CEO comment, details, share price move)

By Euan Rocha

TORONTO, July 20 (Reuters) - Canada’s largest publicly traded electricity producer, TransAlta Corp TA.TO, said on Monday it intends to make an unsolicited takeover bid for Canadian Hydro Developers Inc KHD.TO in an attempt to expand its renewable energy portfolio.

TransAlta’s offer of C$4.55 per share, represents a 24.7 percent premium to Canadian Hydro’s closing price on Friday. The offer implies a deal value of about C$654 million ($589 millon) based on 143.7 million shares outstanding as of May 13, 2009.

Canadian Hydro’s shares jumped 38 percent to C$5.03 in early trade, indicating that shareholders were expecting a sweetened bid, or a competing offer.

“We believe KHD’s long-term contracts and renewable generation exposure will have some interest from other power players,” said Credit Suisse analyst Andrew Kuske, in a note to clients.

The proposed transaction has an enterprise value of about C$1.5 billion, according to TransAlta.

“For TransAlta, this transaction accelerates our current strategy and extends our leadership position to become the largest publicly traded provider of renewable energy in Canada,” said TransAlta Chief Executive Steve Snyder in a statement.

TransAlta approached Canadian Hydro in December last year to discuss a possible deal. However, a negotiated transaction could not be achieved, TransAlta said.

TransAlta said as negotiations over the last seven months have failed, it has decided to make its offer directly to Canadian Hydro Developers’ shareholders.

A spokeswoman for Canadian Hydro was not immediately available for comment.

Canadian Hydro is the largest developer, owner and operator of renewable energy generation facilities in Canada. It operates 21 renewable energy generation facilities, which have a production capacity of about 694 megawatts, according to its last press release.

The company, which recently began wind-power generation at its 197.8 megawatt Wolfe Island site in Ontario, has about 185 megawatts of production capacity that is in, and nearing, construction, along with an additional 1,624 megawatts of capacity in development.

On a combined basis, TransAlta and Canadian Hydro Developers would have net generation capacity of 8,657 megawatts in operation, TransAlta said.

Initially, the transaction will be funded with new committed bank facilities, underwritten by Royal Bank of Canada.

This, along with existing credit facilities and internally generated cash, will provide ample funding to take up and pay for all the outstanding Canadian Hydro Developers shares, TransAlta said.

The initial funding will be replaced with permanent long-term funding from the debt markets, underpinned by raising an additional C$250 million to C$300 million of equity, TransAlta said.

TransAlta believes that this approach will not hurt its investment grade credit ratings. It also added that the proposed takeover would not impact its dividend policy.

TransAlta expects the offer to commence on July 22, and will be open for acceptance for a period of 36 days, expiring on Aug. 27, unless extended or withdrawn.

TransAlta shares, which have fallen 15 percent year-to-date, were down 1.6 percent at C$20.60 in early trade on the Toronto Stock Exchange. (Reporting by Euan Rocha in Toronto and Isheeta Sanghi in Bangalore; editing by Peter Galloway)

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