July 31, 2008 / 1:52 PM / 9 years ago

TransAlta profit drops, company mum on takeover

CALGARY, Alberta (Reuters)- TransAlta Corp TA.TO, the Canadian power generator that has become a takeover target, said on Thursday its second-quarter profit fell 18 percent in comparison with a year-earlier result that was inflated by asset sales.

Earlier this month, two private U.S. funds, LS Power Equity Partners and Global Infrastructure, which together own 9 percent of TransAlta, proposed a C$7.8 billion ($7.6 billion) takeover of the electricity generator, saying they believe the market is undervaluing the stock.

Then, another TransAlta investor, Seneca Capital, urged the board to consider auctioning the company off to boost shareholder value.

However TransAlta is still not ready to detail a response to its shareholders or say if it will look for alternatives to the one offer that’s been made.

“On July 18, TransAlta received a nonbinding letter from LS Power Equity Partners and Global Infrastructure Partners regarding engaging in a dialogue about a possible acquisition of TransAlta for $39 a share,” Steven Snyder, the company’s chief executive said on a conference call. “TransAlta’s special committee of independent directors will carefully consider the letter and will respond in due course.”

Snyder declined to answer questions on the pending bid but did say the proposal has not affected the firm’s operations.

BEATS EXPECTATIONS

TransAlta, which runs coal- and gas-fired power plants and renewable energy facilities in Canada and the United States, said net income in the latest quarter dropped 18 percent to C$47 million, or 24 Canadian cents a share, from a year-earlier C$57 million, or 28 Canadian cents.

After stripping out year-earlier asset sales, comparable profit increased to C$49 million, or 25 Canadian cents a share, from C$42 million, or 20 Canadian cents a share.

Analysts had forecast, on average, a profit of 23 Canadian cents a share according to Reuters Estimates.

Still, the profit result was overshadowed by the possible sale of the company.

“Overall, not a bad quarter,” said Daniel Shteyn, an analyst at Desjardins Securities. “But right now ... it’s not really about the quarter. There’s definitely an elephant in the room.”

Shteyn said he had hoped TransAlta would have used the conference call to detail a response to the offer letter, rather than declining to answer questions.

“Given the fact that a week has gone by, I expected some sort of a preliminary reply,” he said.

TransAlta said its results were buoyed by higher electricity prices in Alberta and the U.S. Pacific Northwest and higher energy trading gross margins.

Those gains were partly offset by lower generating gross margins because of a planned outage at its Centralia coal-fired power plant in Washington state and unplanned outages at its Alberta power operations.

TransAlta’s revenue in the quarter rose 16 percent to C$708 million from C$612 million.

TransAlta shares fell 30 Canadian cents to C$35.70 on the Toronto Stock Exchange on Thursday.

The shares have risen 18 percent over the past 12 months.

($1=$1.02 Canadian)

Additional reporting by Susan Taylor; editing by Rob Wilson

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