Mangrove and Bluescape Ask: Is the Brookfield Investment in the Best Interest of all TransAlta Shareholders?
NEW YORK and DALLAS, March 29, 2019 /PRNewswire/ - A group led by Mangrove Partners ("Mangrove") and Bluescape Energy Partners ("Bluescape"), together one of the largest shareholders of TransAlta Corporation ("TransAlta" or the "Company") (TSX:TA) (NYSE:TAC) with aggregate ownership of 10.1% of the Company's outstanding shares, today raised significant questions about the Company's decision to accept a large investment from Brookfield Renewable Partners ("Brookfield"), including about the rushed process coinciding with the proxy nomination deadline, the favorable valuation and terms given to Brookfield, and the deal's implications for the future accountability of TransAlta's Board and management to shareholders.
Nathaniel August, President and Portfolio Manager at Mangrove Partners, said, "TransAlta's announcement and subsequent disclosures of the Brookfield investment leave many important questions unanswered. Most critically, is it the best deal for TransAlta shareholders or are there potentially superior transactions available? We call on TransAlta's CEO, who has enthusiastically promoted the deal's benefits, to be more forthcoming about its rationale and the process undertaken to ensure TransAlta achieves the best outcome for all shareholders. Until then, we have submitted a notice under the Company's by-laws that we intend to nominate five candidates for election to the Board at the upcoming annual meeting. If at least two are elected, the Company has the option to terminate the Brookfield Investment under the terms of the agreement. Let me be clear: our goal is not to stop this transaction, but rather to ensure that the Company retains the option to pursue or renegotiate a better one."
Key questions raised by Mangrove and Bluescape include:
- Given that only two business days passed between the signing of the confidentiality agreement (when a competitive process normally begins) and execution of the investment agreement with Brookfield, how could the Company have rigorously demonstrated the value of the assets and negotiated the best deal for the Company?
- To what extent did the Company conduct a broadly marketed process to determine the fair market value for the hydroelectric assets before engaging in confidential discussions with Brookfield?
- How did the TransAlta Board determine to give Brookfield the option to buy up to 49% of the Company's Alberta hydroelectric assets for 13x EBITDA, less $10mm capex, when Brookfield told its own investors only last October: "When you see merchant hydro trade today it's generally trading at 20x to 20x+."
- Why is Brookfield's investment split into debt and preferred equity – both priced with larger coupons than TransAlta's unsecured debt, despite the option to convert to equity – instead of being structured as common equity, so that Brookfield is aligned with TransAlta's shareholders?
- Knowing that no other major shareholder has even a single Board seat, why was Brookfield granted two seats on the Board, despite the fact that its interest in the Company is primarily in the form of debt and preferred equity and thus not aligned with TransAlta shareholders generally?
- By imposing a 36-month standstill that runs through the Company's 2022 annual shareholders meeting and giving management control over the voting of Brookfield'scommon shares on all matters, does this agreement not make TransAlta leadership even less accountable to shareholders?
C. John Wilder, Executive Chairman, Bluescape Group, added, "Brookfield are astute investors that excel in purchasing assets below true value for the benefit of their shareholders, not the other side's. We acknowledge that adding the Brookfield nominees to the board would bring greatly needed industry expertise. But at what cost? Until the Company provides more details, we believe all shareholders have reason to question the financial costs of this deal, as well as its potential to further entrench and protect the current TransAlta Board from being accountable to its shareholders."
Ref:
https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aTA-2737372&symbol=TA®ion=C