Tara Lachapelle, Bloomberg
November 29, 2012 | 0 Comments
Traders are betting that Western Wind Energy Corp.'s executives will persuade suitors to top what's already the most expensive valuation for an alternative- energy takeover on record.
Andrew Willis, a spokesman for Hamilton, Bermuda-based Brookfield, said yesterday that the company isn’t commenting beyond its statement, when asked whether it would increase its offer or consider selling its stake to rival bidders.
Nowak estimates Western Wind is worth C$3 to C$4 a share in a deal, or as much as 60 percent more than Brookfield’s bid, because of the potential to reduce overhead expenses. Some buyers may find C$1.50 a share in additional value from Western Wind tax credits that could be used to reduce their U.S. taxable income, he said.
Other interested parties may include independent power producers such as Algonquin Power, Atlantic Power Corp. and Northland Power Inc. as well as large utilities, said McIlveen at Jacob Securities.
Representatives for Oakville, Ontario-based Algonquin Power and Boston-based Atlantic Power didn’t respond to phone calls or e-mails seeking comment on whether the companies are involved in Western Wind’s auction.
Adam Beaumont, director of finance at Toronto-based Northland Power, said the company doesn’t comment on acquisition speculation.
Among the independent power producers, “it would be a company that already has quite a bit of existing U.S. assets in order to take advantage of the tax benefits,” McIlveen said. On the other hand, “utilities are the most likely to pay a higher price because their cost of capital is much lower. Utilities do want online assets and California does have a renewable- portfolio standard.”
Twenty-nine states and the District of Columbia have so- called renewable-portfolio standards mandating that a certain percentage of the power that utilities sell to retail customers be produced from wind, solar or other renewable sources. California has the second-highest target in the nation, requiring 33 percent by 2020, according to data compiled by North Carolina State University.
“Utilities and power companies are looking to build their portfolio of renewable assets as various states have mandated renewable-power standards,” Fraser Mackenzie’s Nowak said. Western Wind’s fixed-price power agreements also make the company an appealing target because “the economics are highly predictable,” he said.
Even though Western Wind received other expressions of interest and Ciachurski has an incentive to seek a higher price, there’s no guarantee that any rival offers will surface.
Credit Suisse Group AG analysts Andrew Kuske and Paul Tan said Brookfield’s existing 16 percent stake in the company may be enough of an obstacle to keep other potential acquirers from making a counterbid.
The stake “will substantially dissuade some competing offers,” the analysts wrote in a Nov. 26 note to clients.
Still, the recent decline in Western Wind and other wind- energy stocks has created an opportunity for buyers willing to bet on the industry, said Amy Grace, a New York-based analyst with Bloomberg New Energy Finance.
“You have buyers hunting around for discounts on assets, either for the operating assets because they’re a pretty stable revenue source, but also the development assets because they may think in the short term there’s no demand for wind but that eventually there will be,” she said in a phone interview. Some “are looking to take advantage of that opportunity, particularly the ones who have a bit of a cash advantage and are larger companies that can buy up these assets on the cheap.”
Jacob Securities’s McIlveen said that while C$2.50 a share is a fair price for Western Wind’s facilities that are already producing energy, it doesn’t account for the tax benefits nor its projects in development, such as the planned Yabucoa facility in Puerto Rico. Western Wind already has an agreement to supply the island’s power authority with energy credits.
Brookfield’s bid “is a good ballpark for what the online assets are, but I think eventually the price will be a little bit higher,” McIlveen said. “This should all unfold by the expiry of the Brookfield offer. We’ll see who the ultimate bidder is by that time and know what the price is. I do think it will be higher than C$2.50.”
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