TransAlta Corp. and its majority wind energy supplier TransAlta Renewables Inc. (RNW) have agreed to merge to strengthen their position in the clean electricity sector.
The decision also “resolves significant risks associated with maintaining RNW’s current level of dividends given challenges with RNW’s cash available for distribution due to the expiration of short-term contracts, significant increases in cash taxes and other factors,” the RNW board chairman said in a joint press release this week.
TransAlta, whose ownership of RNW is currently 60.1 percent, will acquire the remaining common stock of RNW. The binding deal is subject to approval by the latter’s shareholders, who have been offered more than $1.38 billion, including $800 million in cash, the companies said. If the merger materializes, the combined company will take the name TransAtla.
“With the execution of our Clean Electricity Growth Plan underway, it is clear that the strategies of both TransAlta and RNW have converged. Now is the right time to bring these two companies together to create a single leader in clean electricity,” TransAlta President and CEO John Kousinioris said in the announcement.
“The combination of the two companies will underpin a single strategy that will provide greater clarity to investors and support future growth,” he added.
The joint statement said: “The combined company will have unified and direct ownership interests in a diversified portfolio of wind, hydro, solar, natural gas storage and generation assets, all supported by an aligned strategy that enables shareholders of the combined company to benefit from future growth”.
The companies expect the transaction to close by the end of the year. The failure entitles TransAtla to receive $95.5 million in termination payments.
Under the deal, they are offering RNW shareholders $13 per share in cash or the option to transfer to TransAtla by acquiring 1.0337 common shares each.
“RNW shareholders will benefit from the upside due to the current strong energy price environment in Alberta and TransAlta’s position in the Alberta market to generate significant cash flows through capacities and experience of TransAlta’s leading asset optimization team, while continuing to benefit from a strong underlying foundation of contracted cash flows,” the statement said.
TransAlta operates power generation assets in Canada, the US and Australia. In Canada, it claims to be one of the largest producers of wind energy in the country, as well as the main producer of hydroelectricity in the province of Alberta. All three countries have growing opportunities in the clean energy sector and have increased investments to reduce global warming emissions.
Canada has allocated $21.9 billion in green investment over 11 years to support efforts to reduce greenhouse gas emissions, as approved in the country’s 2017 budget released on March 22, 2017. The On December 12, 2018, Canada also announced the phase-out of coal power by 2030.
Meanwhile, the US has set a goal of making its grid carbon-free by 2025, as specified in a presidential order dated January 27, 2021. Among other government funding, the Department of ‘Energia has awarded nearly $350 million in energy modernization grants that support clean electricity. and improve network resilience to disasters.
In Australia, the government has allocated $1.5 billion in the 2023-24 budget, released on 11 May 2023, to invest in so-called renewable energy zones and offshore wind development.
TransAtla and RNW said: “The combined company will leverage scale, assets and capabilities across all markets, while maintaining greater exposure to growing clean electricity opportunities. The deal will make an economic contribution from of incremental 1,187 MW [megawatts] of generating capacity, being 39.9 percent of RNW’s generating capacity not currently owned by TransAlta (directly or indirectly).
TransAlta aims to invest $3 billion to increase its renewable energy capacity to two gigawatts by 2025, as outlined in its Clean Electricity Growth Plan announced on September 28, 2021.
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