Real M&A: Western Wind Seen Luring Bids to Top Priciest Offer

While Brookfield’s offer represents the industry’s steepest multiple of earnings before interest, taxes, depreciation and amortization, Western Wind is still conducting an auction and said interest from other potential bidders indicates that the C$460 million ($463 million) bid is too low. With Chief Executive Officer Jeff Ciachurski set to receive a C$2 million bonus if he can sell Western Wind for at least C$3 a share, Fraser Mackenzie said it could fetch as much as C$4. The company may lure utilities and independent power producers such as Algonquin Power & Utilities Corp., Jacob Securities Inc. said.

“The market’s implying some probability of a higher offer,” Wojtek Nowak, a Toronto-based analyst with Fraser Mackenzie, said in a telephone interview. “Management is highly motivated to get a higher price. They’ve already got assets up and running, which is quite attractive to an operator” and “there is a growth angle that would add additional value” for a buyer, he said.

Suffering Shareholders

Western Wind, the owner of more than 500 wind turbines, operates wind farms in California and a combined wind-and-solar plant in Arizona. It’s also developing a project in Puerto Rico.

The company put itself up for sale on July 30, saying it aimed to relieve the “consistent suffering” its shareholders have endured after the stock plunged to as low as C$1.14 that month, a 43 percent drop from the start of the year.

Western Wind fell this year in part because the company received only a portion of a $90.5 million U.S. Treasury Department grant it applied for to fund one of its California wind farms. The stock also dropped along with other wind-power producers as investors remained skeptical of the demand for renewable energy. The Bloomberg Industries Global Wind Energy Index has slumped 33 percent so far in 2012.

Brookfield, a developer and operator of wind and hydroelectric projects in North America and Brazil, offered to buy the company for C$2.50 a share after the market closed Nov. 23. While the bid was just a 2.9 percent premium to Western Wind’s price that day, it’s 40 percent higher than the stock’s closing level July 30. That day, the shares soared 50 percent to C$1.78 after Western Wind said it would seek a buyer.

Richest Multiple

“While Brookfield Renewable has completed a substantial amount of analysis based on Western Wind’s public disclosure, the offer is being made without the benefit of detailed due diligence or negotiations” with Western Wind’s board, Brookfield said in its Nov. 23 statement announcing the bid. “Brookfield Renewable would welcome the opportunity to work with the board of Western Wind and its advisors towards a board- supported transaction.”

A deal for C$2.50 a share would value Western Wind at 56 times its Ebitda for the last 12 months, the richest multiple ever paid in a takeover of an alternative-energy producer, data compiled by Bloomberg show. The company will release third- quarter results after the close of trading today.

Too Low

Still, Western Wind, which rejected an offer last year from Algonquin Power for the same price, says the bid is too low. Expressions of interest received from auction participants that are conducting due diligence on Western Wind “would imply a value significantly greater than that which Brookfield intends to offer,” the company said in a statement released this week in response to Brookfield’s bid.

“Due to the level of interest and offer price, we believe more offers will be presented,” Ian Tharp, an analyst with Canadian Imperial Bank of Commerce in Toronto, wrote in a note to clients this week.

Ciachurski, Western Wind’s CEO, said in an interview Sept. 12 that he expects a buyer to pay between C$3.75 and C$4.50 a share. He will receive a C$2 million bonus if he secures a deal for C$3 a share or more, according to a regulatory filing. For each additional dollar bid, up to C$7 a share, his payout increases by C$1 million.

“It aligns the CEO’s interest with shareholders to get the highest bid possible,” John McIlveen, a Toronto-based analyst with Jacob Securities, said in a phone interview.

‘Many Buyers’

Western Wind shares have traded above Brookfield’s bid each day since it was made public and ended yesterday at C$2.77, signaling traders anticipate competing offers. The 11 percent premium to the deal price is also larger than any other pending all-cash deal in Canada, data compiled by Bloomberg show.

There are “many buyers at the table” larger than Brookfield, Ciachurski said in an e-mailed response to questions yesterday. Brookfield, referred to as BEP by Ciachurski, “is trying to force a faster sale but shareholders will run the show. The more shareholders ignore BEP, the higher the price they will get.” He declined to name any interested parties or comment further on the sale process.

Shareholders have until Jan. 28 to tender their shares to Brookfield, which already owns a 16 percent stake in the company.

“Investors can hold out for the next couple of months to see if anything else comes out of the auction process,” Fraser Mackenzie’s Nowak said. “If nothing does, they have Brookfield’s bid to fall back on. That’s the advantageous part for investors in the stock.”