Renewable Energy M&A: TransAlta Corp to consolidate ownership of TransAlta Renewables for an enterprise value of ~$1.4bn

published on 12 July 2023

Agreement details: TransAlta Corp (TAC) will acquire the remaining 39.9% stake or ~105 million shares of TransAlta Renewables (RNW) that it doesn't already own. Under the agreement, RNW shareholders will have the option to exchange each of their shares for either 1.0337 common shares of TAC or $9.78 in cash. The offer price represents an 18.3% premium to the closing price of RNW shares on the Toronto Stock Exchange (TSX) as of July 10, 2023, resulting in an equity value of approximately $1.04bn. The consideration also includes the assumption of RNW's net debt of ~$402mn for the 39.9% stake. A termination payment of ~$72mn to RNW is included in the agreement in the event of deal termination. Following the completion of the transaction, TAC shareholders will hold an 85% stake in the combined company, with RNW shareholders retaining the remaining shares. The transaction is expected to close in the fourth quarter of 2023.

Target Company details: RNW's diversified portfolio includes 29 operational wind, solar, and battery storage systems with a total capacity of approximately 1.9 GW. Additionally, the company operates 8 natural gas facilities with a combined capacity of around 978 MW, and 11 hydroelectric facilities with a capacity of 109 MW. These projects are spread across Canada, the United States, and Australia. RNW generates revenue through long-term power purchase agreements (PPAs) as well as in the merchant market. The company also has a development pipeline of ~827 MW that is expected to be operationalized during 2024- 2028. In the last 12 months, RNW reported revenue of ~$395mn and EBITDA of ~$164mn.

Deal rationale: This transaction will establish an integrated independent power producer and utility platform, boasting a combined net operating capacity of 6.2 GW, along with a robust development pipeline of ~1.3GW spanning North America and Australia. The consolidation aligns with TransAlta's goal of deriving over 70% of its EBITDA from renewable sources by 2030. By gaining improved access to capital markets and enhanced trading liquidity, the combined company is well-positioned to expand its portfolio in core markets and progress towards its objective of becoming a fully renewable platform by 2045. 

Enerdatics observes that this strategy is in contrast to that adopted by other major North American power players, such as NextEra and Clearway. Both companies have separated project development, and power retail and supply under separate divisions. This helps to separate the market exposure of project ownership from the capital intensity of renewable energy development.

The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.

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