CALGARY (CP) -- Two U.S. private equity firms are offering about $7.8 billion - or $39 a share in cash - for Alberta-based utility TransAlta Corp. (TA), which had been under pressure by a major investor to boost its stock price.
LS Power Equity Partners and Global Infrastructure Partners presented TransAlta with a "non-binding approach" on Monday.
TransAlta said its board will "carefully consider the letter and will respond in due course."
LS Power Equity Partners is linked to Luminus Management LLC, the New-York based hedge fund that fought earlier this year to persuade TransAlta to shed assets and to load up on debt as a means to buy back shares.
LS Power president James Bartlett said in a telephone interview that the suitors are seeking a "consensual, negotiated transaction."
The proposal Monday is a premium of 21 per cent over TransAlta's TSX price Friday of $32.25, with a 52-week range between $37.60 and $27.07.
TransAlta shares jumped as high as $38.10 after Monday morning's news, trading later at $36.51, up $4.26 or 13 per cent.
LS Power Equity Partners and Luminus, closely related to Houston-based Dynegy Inc. (DYN), together already own a nine per cent stake in TransAlta.
Global Infrastructure Partners is a joint venture of Credit Suisse (NYSE:CS) and General Electric Co. (GE).
Talks with TransAlta have gone on for "a relatively long period of time," including discussions in recent days, said Bartlett, a former Credit Suisse managing director who sits on the Dynegy board.
"LS Power and Global Infrastructure Partners, as informed power-sector investors, have a long-term-investor point of view and we want to support the company," he added.
"We also very much think (TransAlta CEO) Steve Snyder is doing a good job. We're committed to retaining the current CEO and management."
TransAlta's head office would remain in Alberta, he said, and it would remain "business as usual" for power consumers in the province.
"We, by the nature of being a private company versus a public stockholder, aren't worried about quarter-to-quarter earnings targets, and we think that's frankly the best way to support the company and give it the flexibility to invest and execute over the long term," Bartlett said.
Dealing with the heavily coal-dependent generator's environmental sustainability would be a key issue, Bartlett said.
"We believe in developing sources of renewable energy, greenhouse gas solutions. And as well, like TransAlta, we believe that it's important to identify sustainable ways to increase generation capacity."
Bartlett did not specify how ownership of TransAlta would be split between LS Power and Global Infrastructure Partners, but the two "are straight-up partners in the transaction," he said.
Earlier this year, Luminus sought to shake up the utility's board, aiming to force it to sell assets and bulk up its debt to buy back shares. The hedge fund withdrew its proposed slate of directors in March after some of its demands were met, including the sale of TransAlta's power business in Mexico.
Desjardins Securities analyst Daniel Shteyn said he had been keeping a close eye on "the Luminus factor" in recent months, though he did not predict an outright takeover offer.
"I wasn't sure what Luminus was going to do, but in my view, it was pretty clear that they were not going to go away," he said in an interview.
TransAlta's management and board will probably not bite initially, he said.
"I think that their first reaction is going to be 'no,' but in these things you always say 'no' first and then you negotiate," Shteyn said.
He said he does not see any other strategic bidders entering the fray.
"I don't think that they have the appetite for Alberta and I don't think that their cost of capital is really there," he said.
Canadian pipeline builder and power generator TransCanada Corp. (TRP) could be a potential suitor, but Shteyn said that would be unlikely, too.
"I don't think that they would want it. It would give them too much exposure to power versus pipelines," he said.
Shteyn noted that Canadian pension funds "have historically demonstrated an appetite for power assets" but currently are busy with other transactions such as the takeover of BCE Inc. by the Ontario Teachers' Pension Plan.
He said TransAlta may be able to provoke an auction, but "this is by no means a foregone conclusion."
Whether or not another bidder enters the scene, Luminus, as a major TransAlta shareholder, benefits, Shteyn said.
"Even if there is somebody that comes in and outbids Luminus, then Luminus is laughing. Because they get to sell at $40 at above and they picked up their stake at less than $30," he said.
TransAlta earned $33 million in its latest reported quarter, down from $56 million in the first quarter of last, year as it booked a $65-million writedown on the Mexican assets sold for $304 million in February.
Three-month revenue rose to $803 million from $669 million.
The company will release second-quarter results on July 31.
(c) The Canadian Press 2008