TransAlta courted by $7.8 billion bid

By Jeffrey Jones

CALGARY, Alberta (Reuters) - LS Power Equity Partners and Global Infrastructure Partners said on Monday they aim to buy TransAlta Corp (TA.TO) for C$7.8 billion ($7.8 billion), just four months after an affiliate dropped a bid to control the power generator's board.

The private U.S.-based firms said they approached TransAlta late last week with a nonbinding proposal to acquire the Canadian company's shares for C$39 each, a 21 percent premium over its closing price on Friday.

Shares in TransAlta, which runs coal- and gas-fired power plants and renewable energy facilities in Canada and the United States, surged C$4.40, or 14 percent, to C$36.65 on the Toronto Stock Exchange.

LS Power is affiliated with Luminus Management LLC, and the firms own 9 percent of TransAlta's stock. Early this year, Luminus campaigned to stack TransAlta's board with its own nominees in a bid to get the company to load up on billions of dollars of debt to fund major stock buybacks.

Luminus dropped its proxy fight in March, saying it was pleased with moves by TransAlta to boost value, including selling its Mexican operations and raising its dividend.

The suitors were careful on Monday to maintain a courteous tone as they proposed talks with the board and management to devise a plan of arrangement rather than taking an offer directly to shareholders.

"We grew to appreciate their approach to executing their strategy, so our thinking evolved, certainly with respect to the management and the job they were doing," LS Power President James Bartlett said in an interview. "Our view is that they were doing a good job with execution, but within private ownership they are going to be able to do better."

Bartlett said he wanted to keep the Calgary-based company's management in place, including Chief Executive Steve Snyder.

TransAlta, best known for its large coal-fired power plants in Alberta and Washington state, said its board formed a special committee to evaluate the proposal and respond to shareholders. It said investors need not take action now.

"What Luminus, or LS Power, has put forward is not an offer to buy TransAlta but rather a nonbinding, highly conditional, invitation to discuss a potential transaction," spokesman Michael Lawrence said.

The price, which is above the stock's record high of C$36.86 set at the end of June, is likely fair, given the forecasts for TransAlta's profit, Desjardins Securities analyst Daniel Shteyn said. He said it values the company at 10 times expected 2009 pretax operating earnings.

"But the other thing is, are they serious about this offer? Also, what is this offer going to do in terms of generating further value for shareholders beyond the C$39 price?" Shteyn said.

If TransAlta can attract a white knight, perhaps a Canadian private equity or pension fund investor, then a bidding war could erupt, he said.

Despite U.S. credit woes, financing is not a concern for LS Power and Global Infrastructure, which is owned by Credit Suisse (CSGN.VX) and General Electric (GE.N), Bartlett said.

The transaction would be funded with C$6 billion of equity, and a C$2 billion debt facility from Credit Suisse, he said.