July 30, 2009 / 1:34 PM / in 8 years

UPDATE 2-TransAlta posts loss, defends Canadian Hydro bid

* Q2 comparable loss C$0.03/share vs earnings of C$0.25

* Says bid for Canadian Hydro “compelling value”

* Electricity production 9,656 GWh vs 10,652 GWh

* Sees full-year cash flow C$650 mln-C$750 mln (Adds details, comments; changes dateline from Toronto)

By Scott Haggett

CALGARY, Alberta, July 30 (Reuters) - TransAlta Corp (TA.TO) defended its unsolicited offer for Canadian Hydro Developers Inc KHD.TO on Thursday, saying the bid represented fair value for the renewable-power company.

TransAlta, Canada’s biggest pure-play electricity firm, reported an unexpected second-quarter loss on Thursday, because of weak prices and maintenance on some of its plants, saying that the upkeep work, accelerated because of the soft prices, would aid future reliability and boost earnings for the remainder of this year and next.

Since TransAlta made its C$4.55 per share, C$654 million ($606 million) offer for Canadian Hydro earlier this month, the shares of its would-be target have traded as much as 13 percent over TransAlta’s price as investors looked for a rival bid or a sweetened offer.

“People are thinking there is going to be a higher bid either from TransAlta or another (company),” said Steven Paget, an analyst at FirstEnergy Capital.

However Steve Snyder, TransAlta’s chief executive, said the bid offers full value for Canadian Hydro.

“The price we are offering represents compelling value,” Snyder said on a conference call. “Our offer takes into account a full range of factors regarding the value of Canadian Hydro’s ... assets and environmental attributes.”

Canadian Hydro has rejected the offer. The company operates wind power and hydro projects in Canada, while TransAlta runs thermal, wind power and hydro-electric facilities in Canada, Australia and the United States.

UNEXPECTED LOSS

TransAlta said it lost C$6 million, or 3 Canadian cents a share, compared with a profit of C$47 million, or 24 Canadian cents a share, in the second quarter of 2008.

The company also reported a comparable loss, which excludes most one-time items, of C$6 million, or 3 Canadian cents a share, versus comparable earnings of C$47 million, or 25 Canadian cents a share.

The comparable result lagged the average analyst profit expectation of 10 Canadian cents per share, according to Reuters Estimates.

Cash flow from operations was C$57 million, down from C$171 million a year ago, due mainly to stepped-up maintenance. For the full year, TransAlta expects cash flow between C$650 million and C$750 million.

Low natural gas prices and demand cuts spurred by the recession have cut electricity prices in some of TransAlta’s biggest markets, and the company has accelerated planned maintenance while prices are low.

Electricity production totaled 9,656 gigawatt hours in the quarter, down from 10,652 GWh a year earlier.

Revenue dropped 17.4 percent to C$585 million.

TransAlta shares fell 4 Canadian cents to C$20.69 on the Toronto Stock Exchange on Thursday afternoon while Canadian Hydro climbed 6 Canadian cents to C$5.07.

$1=$1.08 Canadian Additional reporting by Scott Anderson; editing by Rob Wilson

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