TransAlta to pay $1.38-billion to buy back minority stake in renewable energy company

Alberta-based energy producer TransAlta Corp. TA-T said on Tuesday that it will acquire the outstanding common shares it does not already own in TransAlta Renewables Inc. in a cash and equity deal valued at $1.38-billion.

TransAlta Renewables shareholders can opt for 1.0337 common shares of TransAlta or $13.00 in cash for each share outstanding, representing an 18.3 percent premium based on the closing price of Renewables shares on the Toronto Stock Exchange on monday TransAlta has limited the number of common shares it will issue to 46 million, while the maximum cash available is $800-million.

TransAlta spun off part of its renewables division — which produces electricity from wind, hydroelectricity and solar plants — in an initial public offering in 2013, but retains a 60-percent stake in the company.

At the time of the IPO, each Renewables common share was worth $10.00, raising $200-million. The spin-off is intended to offset the cost of switching from coal-fired power plants.

TransAlta said its decision to buy back the minority stake will align strategies between the two companies, diversify assets, and help maintain quarterly dividends for shareholders.

TransAlta has launched a clean electricity growth plan to add new generation capacity and additional clean energy projects across Canada, the United States and Australia.

“Now is the right time to bring these two companies together to create a clean electricity leader,” said TransAlta chief executive John Kousinioris in a news release.

“The combined company’s greater scale and enhanced position will drive benefits and unlock value for all of our shareholders. The combination of the two companies is underpinned by a strategy that provides greater clarity to investors and support future growth.

In April, TransAlta acquired a majority stake in the Tent Mountain Renewable Energy Complex, an early-stage hydro energy storage project, in a deal valued at up to $24.7-million.

In the 12 months ended March 31, TransAlta reported net income of $158-million on revenue of $3.33-billion, according to S&P Global Market Intelligence.

David Drinkwater, chair of the board of directors of TransAlta Renewables, said the transaction will restore certainty of cash flow for the shareholders of Renewables.

“This addresses the significant risks associated with maintaining RNW’s current dividend level given the challenges in RNW’s cash available for distribution due to the imminent termination of the contract, significant increases on tax money and other factors,” he said in the press release.

Shares of TransAlta Renewables rose 18 percent to $13.01 on the Toronto Stock Exchange in early afternoon Tuesday. Meanwhile, TransAlta shares rose 1.23 percent to $12.38.