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TransAlta to buy renewables spin-off for $1.4B

Calgary-based firms will merge to execute simplified renewables strategy

Courtesy TransAlta Corp. and TransAlta Renewables.

TransAlta Corp. (TA-T) intends to acquire the remaining shares of TransAlta Renewables (RNW-T) it does not already own for $1.38 billion, to simplify and strengthen its clean energy strategy.

TransAlta currently owns about 60 per cent of the renewables firm. Each TransAlta Renewables share will be exchanged for 1.0337 common shares of TransAlta or $13 in cash per share, according to a press release.

TransAlta owns and operates $10-billion worth of energy assets in Canada, the U.S. and Australia, and says it is the largest producer of hydroelectric power in Alberta. The Calgary-based power generator spun off its renewable power business in 2013 in a $220-million initial public offering for over 1,200 megawatts of generating capacity in Canada.

The spin-off, TransAlta Renewables, says it is one of the largest publicly traded renewable independent power producers in Canada, now holding interests in almost 3,000 megawatts of owned generating capacity across renewable energy, batteries and natural gas. Also based in Calgary, it too has assets in Canada, the U.S. and Australia.

“The combined company's greater scale and enhanced positioning will drive benefits and unlock value for all of our shareholders," TransAlta president and CEO John Kousinioris says in the release. "The combination of the two companies will be underpinned by a single strategy that provides greater clarity to investors and will support future growth.”

The combined company will continue to operate as TransAlta.

Simplify and strengthen its renewables business

TransAlta states its rationale for the acquisition is to develop a clear strategy and opportunity for long-term growth in the renewables space.

The release states the acquisition is aligned around a single strategy that will share a “common strategic path to achieve its clean electricity growth objectives and be more competitive as a single, streamlined, publicly-listed entity." It will support management’s strategic focuses in marketing, development, construction, operation and maintenance of renewable electricity generation assets.

Merging also increases the market capitalization and opens more access to capital markets with increased trading liquidity, TransAlta adds. This should enable additional investment into its clean energy portfolio.

The takeover would also increase efficiencies by funding growth in a single entity, thus raising retention of cash flows and reducing corporate and administrative costs.

TransAlta contends its shareholders will benefit from diversified stakes in renewable energy, energy storage and natural gas generation assets. For TransAlta Renewables shareholders, the benefits are access to an expanded pool of assets, immediate exposure to Alberta’s electricity market and participation in a consolidated development pipeline of 4.3 gigawatts of clean energy projects, the release states.

David Drinkwater, the chair of TransAlta Renewables’ board, says in the release, “We are pleased to announce that this transaction provides (TransAlta Renewables) shareholders with an immediate premium and greater growth and cash flow certainty going forward.”

Drinkwater adds the acquisition resolves “significant risks” with maintaining TransAlta Renewables' current dividend level, given challenges with its cash available for distribution due to near-term contract expiries, significant increases to cash taxes and other factors.

Once approvals and closing conditions are satisfied, TransAlta says the deal is expected to be completed this fall.

TransAlta’s green strategy

TransAlta has committed to reaching net-zero by 2045.

In September 2021, TransAlta set out on its Clean Electricity Growth Plan to deliver two gigawatts of clean energy generation and a five-gigawatt growth pipeline by 2025. It has currently achieved 800 megawatts of clean energy generation. TransAlta also set out a target of $3.6 billion in capital investment for its plan and has achieved $1.5 billion so far.

Its 2023 strategy revolves around developing and maintaining a pipeline of greenfield and brownfield opportunities that will add at least 1,500 megawatts of new development sites to its pipeline. There is also the intent to achieve commercial operations and integrate its Garden Plain wind project, Northern Goldfields solar and storage project, White Rock and Horizon Hill wind projects and the Mount Keith transmission project.

TransAlta previously spoke to SustainableBiz about its 320-megawatt pumped hydro energy storage development project in Alberta, in which it holds a 50 per cent stake.

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