Transalta Makes Grab for Canadian Green Energy Supremacy

One of Canada's largest independent power producers, TransAlta Corporation (TSX:TA), has made an unsolicited hostile takeover bid to acquire Canadian Hydro Developers Inc., (TSE:KHD), the biggest renewable-energy producer in Canada, in an effort to expand its renewable energy portfolio.

The $590.6 million all-cash offer has an enterprise value of approximately $1.5 billion. (Enterprise value is a market-based measure of a company's value by adding a company's market capitalization to its total debt.)

Prior to this most recent attempt, TransAlta repeatedly tried to negotiate a friendly deal, only to have their advances rebuffed by Canadian Hydro, which has nearly 700 megawatts of installed capacity and has plans to add an additional 200 megawatts by 2011, with a 15% or more annual increase thereafter.

TransAtla's CEO Steve Snyder said in a statement that the offer provides "Canadian Hydro Developers shareholders with significant, immediate and certain value for the company's existing assets, as well as its future growth potential." The offer price is at least 25% higher than the volume weighted average trading price Canadian's Hydro stock over the last couple of weeks.

Calgary-based Canadian Hydro got its start more than 20 years ago by developing small-scale, run-of-river hydro projects in Alberta. Since then, it has expanded its geographic base exponentially. It now operates wind, hydro and biomass facilities in Ontario, British Columbia, Quebec and Alberta. It is also developing power-purchase projects that are in or nearing construction in eastern and western Canada.

The company's diverse operations in renewable-power projects in various regions work to its advantage, helping the company better cope with production volatility resulting from changing weather conditions. For its part, TransAlta is Canada's largest publicly traded electricity company has the size (more than five times the market cap of Canadian Hydro) to allow it to leverage the renewable energy firm's already solid asset base and strong brand.

Given the green policy initiatives being adopted across the country, such as Ontario's Green Energy Act, the future for renewables in Canada is bright. And since TransAlta, which is heavily reliant on coal-based generation, could use its acquisition of Canadian Hydro to offset emissions from its power plants in order to meet expected forthcoming federal climate change regulations, the implications are profound.

The proposed transaction has a deadline of August 27, unless withdrawn or extended.

Keep an eye on this deal!