TransAlta plays waiting game with target Cdn Hydro

* TransAlta may need to sweeten, extend bid

* Cdn Hydro shares trade above TransAlta C$4.55 offer

* No other bidders, TransAlta offer closes Sept. 22

By Susan Taylor

OTTAWA, Sept 14 (Reuters) - TransAlta Corp (TA.TO) may need to sweeten or extend its C$654 million ($600 million) bid for Canadian Hydro Developers Inc KHD.TO, because shareholders seem unmoved by the current offer, analysts say.

But in the absence of any rival bids for the green energy producer, TransAlta can afford to wait and see what strategy it needs to employ.

TransAlta, Canada's biggest investor-owned power producer, bid C$4.55 a share for Canadian Hydro in mid-July. Since then, it has twice extended its hostile offer, which now closes Sept. 22, but it has not raised its bid -- which has consistently lagged Canadian Hydro's share price.

Canadian Hydro shares, which were at C$8 in 2007, were worth C$4.94 on the Toronto Stock Exchange on Monday morning. TransAlta was at C$21.22.

Canadian Hydro's board has rejected the bid, calling it opportunistic and inadequate. The company's big, institutional shareholders are not interested, and need a "much, much higher" offer to tender their stock, CEO Kent Brown said last month.

"It's not like they absolutely need another bidder to come in to save them. I think shareholders have made it clear that they're not going to tender at C$4.55," Haywood Securities analyst Tania Maciver said in an interview.

"Where's the right number? Everything is potentially for sale at a price. The question is: does TransAlta get to that price? Or does any alternative get to that price?"

TransAlta, which produces most of its electricity from coal-fired plants, said it took its offer to shareholders only after seven months of failed negotiations with Canadian Hydro.

Since then, it has twice asked Alberta's securities regulator to quash its target's shareholder rights plan. At a second hearing, Canadian Hydro agreed to drop its plan on Sept. 21.

Such plans typically trigger a massive share issue, making a takeover too costly.

UNLIKELY TO WALK AWAY

There is no question TransAlta is serious in its quest to acquire Canadian Hydro, analysts say.

"This is an aggressive move by them and they didn't do it just to walk away after a couple of months," Maciver said.

"I wouldn't be surprised if they did up the offer, but it's also possible we could see another extension of the offer to buy some more time. Those are the options. I don't think we're going to see them walk away just yet."

Canadian Hydro says it is talking to a number of interested parties that are reviewing detailed company information.

Chairman Dennis Erker has said the company can do better for shareholders, and is pursuing a range of alternatives to generate superior value to TransAlta's offer. He cautioned that the process takes time to conduct properly.

Companies ranging from utilities to infrastructure firms to financial institutions could find Canadian Hydro's wind and hydroelectric power assets attractive, analysts say.

"Too many to name," said Versant Partners analyst Massimo Fiore in an interview.

But until they step forward, TransAlta can wait and watch.

"There's no reason for them to increase a bid purely based on potential threat," Fiore said. "TransAlta can walk away ... there are other really interesting assets out there in the same space," he said, naming green energy producers Innergex Power Income Fund IEF_u.TO and Boralex Inc (BLX.TO) as examples.

Macquarie Research analyst Matthew Akman said in a recent note that a European player may submit a higher offer for Canadian Hydro, but called it an "outside possibility".

($1=$1.08 Canadian) (Reporting by Susan Taylor; editing by Rob Wilson)