Brookfield Makes $750 Million Investment to Advance TransAlta’s Transition to Clean Energy
TransAlta to host Investor Conference Call at 7:00 AM MDT
Calgary, March 25, 2019 – TransAlta Corporation (“TransAlta” or “the Company”) (TSX: TA) (NYSE: TAC) announced today an investment by Brookfield Renewable Partners and its institutional partners (collectively “Brookfield”) that crystalizes the value of its Hydro Assets, enhances its financial position to execute its strategy, and accelerates the opportunity to return capital to shareholders. This investment will ensure TransAlta will transition to 100% clean energy by 2025.
Under the terms of the agreement, Brookfield will invest $750 million in TransAlta (the “Investment”) through the purchase of exchangeable securities (described below), which will be convertible into an equity ownership interest in TransAlta’s Alberta Hydro Assets in the future at a value based on a multiple of the future Hydro Assets’ EBITDA. In addition, Brookfield has committed to purchase TransAlta common shares on the open market to increase its share ownership in TransAlta to 9%. TransAlta will include two experienced Brookfield nominees, Harry Goldgut and Richard Legault, on its slate of directors for election at the upcoming 2019 Annual and Special Meeting of shareholders (the “2019 Meeting”). TransAlta and Brookfield intend to work together to complete TransAlta’s transition to clean energy, maximize the value of the Hydro Assets, and create long-term shareholder value.
TransAlta also announced today that Robert Flexon, former CEO of Dynegy, has agreed to stand for election at the 2019 Meeting, bringing with him critical leadership skills and experience from the independent power-producing industry in the US.
RBC Global Asset Management Inc., TransAlta’s largest shareholder at 12.4%, is supportive of the strategic Investment and has committed to supporting TransAlta’s slate of director nominees at the upcoming 2019 Meeting.
“Brookfield’s investment is a strong endorsement of TransAlta’s strategy and future value,” said Dawn Farrell, President and Chief Executive Officer. “By crystallizing the value of our Hydro Assets, we can accelerate the return of capital to shareholders and invest in coal to gas conversions and strategic gas and renewable developments, while still meeting our goal to reduce senior indebtedness to $1.2 billion by the end of 2020. With Brookfield as a cornerstone shareholder, we are well positioned to invest in our business and increase value for shareholders.”
“We are pleased to partner with TransAlta to accelerate its transition to clean energy and support value creation for all shareholders,” said Sachin Shah, CEO, Brookfield Renewable Partners. “We look forward to contributing our capabilities, particularly our long-term expertise in the hydro sector, to enable the company’s growth over the long-term.”
Ambassador Gordon Giffin, Chair of the Board of TransAlta, said, “In addition to capital and operating expertise, we are adding deep industry experience, expertise and fresh perspectives to our Board. Mr. Goldgut, Mr. Legault and Mr. Flexon have impressive track records in renewable energy, thermal energy, infrastructure and value creation in rapidly evolving electricity markets. Together, we will work to ensure TransAlta’s success as we transform the company into a clean energy leader.”
Harry Goldgut is a Vice Chair in Brookfield’s Renewable Power and Infrastructure Groups. Mr. Goldgut has played a key role in the acquisition of the majority of Brookfield’s renewable power assets and has been involved in the restructuring of the electricity market in Ontario as a member of the Electricity Market Design Committee and the Clean Energy Task Force.
Richard Legault is a Vice Chair in Brookfield’s Renewable Power Group and served as the CEO of Brookfield Renewable Partners until August 2015. During his 28 years at Brookfield, Mr. Legault led the development and expansion of Brookfield’s renewable business in North and South America, and Europe. He also served as CFO at Brookfield Asset Management from 2000 to 2001.
Robert Flexon was the President and Chief Executive Officer of Dynegy Inc. from 2011 until its acquisition by Vistra Energy Corp. in April 2018. Dynegy was a U.S. independent power producer engaged in the operation of power generating facilities and was previously listed on the NYSE.
In concluding that the Investment is in the best interests of the Company and its shareholders, the TransAlta board of directors received the recommendation of its independent special committee formed to evaluate and oversee the negotiations of the transaction and the analysis and advice from its financial advisor, CIBC World Markets Inc., and its legal advisor, Davies Ward Phillips & Vineberg LLP.
Additional details about the proposed Investment by, and TransAlta’s strategic arrangement with, Brookfield will be available in the Company’s material change report, available on www.sedar.com and www.sec.gov by March 26, 2019. A copy of the Investment Agreement will be included with the material change report. This press release is only a summary of certain principal terms of the Investment and is qualified in its entirety by reference to the more detailed information contained in our material change report and the Investment Agreement. Shareholders are urged to read those materials carefully.
As previously announced, the Company’s annual general and special meeting of shareholders is scheduled to be held at 10:30 a.m. (Calgary time) on April 26, 2019 at the TELUS Convention Centre in Calgary, Alberta. Shareholders are not being asked to take any action with respect to the 2019 Meeting at this time. The Company anticipates filing and mailing its Notice of Annual and Special Meeting and Management Proxy Circular for the 2019 Meeting by April 1, 2019, which will include full information concerning management’s proposed nominees for election to the TransAlta Board.
TransAlta will hold a conference call and webcast at 7:00 a.m. MDT (9:00 a.m. EDT) today, March 25, 2019, to discuss the strategic investment. The call will begin with a short address by Dawn Farrell, President and CEO, followed by a question and answer period for investment analysts and investors. Please contact the conference operator five minutes prior to the call, noting “TransAlta Corporation” as the company and “Sally Taylor” as moderator.
Toll-free North American participants call: 1-888-231-8191
A link to the live webcast will be available on the Investor Centre section of TransAlta’s website at https://transalta.com/powering-investors/events-and-presentations. If you are unable to participate in the call, the instant replay is accessible at 1-855-859-2056 (Canada and USA toll free) with TransAlta pass code 3238069 followed by the # sign. A transcript of the broadcast will be posted on TransAlta’s website once it becomes available.
TransAlta owns, operates and develops a diverse fleet of electrical power generation assets in Canada, the United States and Australia with a focus on long-term shareholder value. We provide municipalities, medium and large industries, businesses and utility customers clean, affordable, energy efficient, and reliable power. Today, we are one of Canada’s largest producers of wind power and Alberta’s largest producer of hydro-electric power. For over 100 years, TransAlta has been a responsible operator and a proud community-member where its employees work and live. TransAlta aligns its corporate goals with the UN Sustainable Development Goals and we have been recognized by CDP (formerly Climate Disclosure Project) as an industry leader on Climate Change Management. We are also proud to have achieved the Silver level PAR (Progressive Aboriginal Relations) designation by the Canadian Council for Aboriginal Business.
For more information about TransAlta, visit our web site at transalta.com.
This News Release includes “forward-looking information”, within the meaning of applicable Canadian securities laws, and “forward-looking statements”, within the meaning of applicable United States securities laws, including the United States Private Securities Litigation Reform Act of 1995 (collectively referred to herein as “forward-looking statements”). All forward-looking statements are based on our beliefs as well as assumptions based on information available at the time the assumption was made and on management’s experience and perception of historical trends, current conditions, results and expected future developments, as well as other factors deemed appropriate in the circumstances. Forward-looking statements are not facts, but only predictions and generally can be identified by the use of statements that include phrases such as “may”, “will”, “can”; “could”, “would”, “shall”, “believe”, “expect”, “estimate”, “anticipate”, “intend”, “plan”, “forecast” “foresee”, “potential”, “enable”, “continue” or other comparable terminology. These statements are not guarantees of our future performance, events or results and are subject to a number of significant risks, uncertainties and other important factors that could cause our actual performance, events or results to be materially different from that set out in the forward-looking statements.
In particular, this News Release contains forward-looking statements including, but not limited to, statements relating to the strategic Investment by and partnership with Brookfield, or its affiliated entities; the timing and probability for completing the proposed Investment; the expected benefits to the Company and its shareholders following the completion of the Investment; the Company’s future ownership levels in or level of control over the Alberta hydro assets; the anticipated timing, costs and benefits of TransAlta’s coal-to-gas conversion strategy; the timing, terms and probability of returning capital to shareholders; the ongoing objectives and strategies of the Company, including as it pertains to reducing debt, growing the renewables business, maintaining, realizing and maximizing the value of the hydro assets and converting coal-fired units to natural gas fired units; Brookfield increasing and maintaining its share ownership in the Company; the appointment of two Brookfield nominees and Mr. Robert Flexon to the Board of Directors of the Company at the 2019 Meeting and the expected benefits to be realized from such appointments or any replacement directors; the use of proceeds from the Investment, including directing $350 million to advance the Company’s coal to gas transition strategy and up to $250 million to buy back shares; the expected higher cash flow and anticipated adjusted EBITDA to be generated by the Alberta Hydro Assets following expiry of the power purchase arrangement in 2020 or upon conversion of the Exchangeable Securities; the expected benefits of Brookfield being a cornerstone shareholder; the Company’s ongoing objectives, strategies and outlook for 2019 and subsequent periods; changes to our relationship with or the ownership of securities by Brookfield or its affiliates or other shareholders; legislative, regulatory and political uncertainty in the jurisdictions in which we operate; and the filing and mailing date of the Management Proxy Circular, the date of the 2019 Meeting and its outcome. The forward-looking statements contained in this News Release are based on many assumptions including, but not limited to, the following material assumptions: no significant changes to applicable laws, including any tax and regulatory changes in the markets in which we operate; the anticipated structure and framework of an Alberta capacity market in the future; no material adverse impacts to the investment, securities and credit markets; assumptions referenced in our 2019 guidance; the closing of the Investment occurring following the Meeting and the outcome of the 2019 Meeting; our Alberta hydro assets achieving their anticipated value, cash flows and EBITDA once the applicable power purchase arrangement has expired; no material decline in the dividends expected to be received from TransAlta Renewables Inc.; the expected life extension of the coal fleet and anticipated financial results generated on conversion; assumptions regarding the ability of the converted units to successfully compete in the expected Alberta capacity market; assumptions regarding our current strategy and priorities, including as it pertains to our coal-to-gas conversions, growing TransAlta Renewables Inc., maintaining and realizing the value of our hydro assets and being able to realize the full economic benefit from the capacity, energy and ancillary services from our Alberta Hydro Assets once the applicable power purchase arrangement has expired; and assumptions relating to the completion of the strategic partnership with and Investment by Brookfield and proposed substantial or normal course issuer bids.
The material factors and assumptions used in the preparation of the forward-looking statements contained herein, which may prove to be incorrect, include, but are not limited to, the assumptions set forth herein and in management’s discussion and analysis and the Company’s annual information form dated as of February 26, 2019. By their nature, forward-looking statements are not guarantees of future performance, events, results or actions and are subject to a number of significant risks, uncertainties, assumptions and factors that could cause our actual plans, performance, results or outcomes to differ materially from the forward-looking statement. Factors that may adversely impact what is expressed or implied by forward-looking statements contained in this News Release include, but are not limited to, risks relating to: fluctuations in demand, market prices and the availability of fuel supplies required to generate electricity; changes in demand for electricity and capacity and our ability to contract our generation for prices that will provide expected returns and replace contracts as they expire; changes in the current or anticipated legislative, regulatory and political environments in the jurisdictions in which we operate; environmental requirements and changes in, or liabilities under, these requirements; risks to our ability to close the Investment by Brookfield, including the Company exercising its rights to terminate the transaction following the 2019 Meeting; and the failure of the conditions precedent to the investment to be satisfied; potential legal disputes or proceedings, including as it pertains to the Investment; the inability to complete the share buy-backs within the timeline or on the terms anticipated or at all, including the conditions to any bid, any bid not having the effects or benefits anticipated, the extent to which shareholders tender shares to any bid and the price or prices at which any shares are tendered; risks associated with the calculation of the Hydro Assets’ EBITDA, including non-financial measures included in the calculation of the Hydro Assets’ EBITDA, for purposes of valuing the Investment and upon the exchange of Exchangeable Securities; the anticipated benefits of the hydro assets operating committee not materializing; the timing and value of Brookfield’s exchange of Exchangeable Securities and the amount of equity interest in the Hydro Assets resulting therefrom, including as a result of the top-up option; risks associated with the impact of the Investment on the Company’s shareholders and debtholders or its credit ratings; the Company’s inability to redeem the Exchangeable Securities after December 31, 2018 due to changing circumstances or otherwise; the costs of the Investment exceeding its anticipated value; changes in general economic conditions including interest rates; operational risks involving our facilities, including unplanned outages at such facilities and our ability to return these facilities to service in a timely manner; our ability to conduct the repair and maintenance to our facilities, either directly or through a third party, in a timely and cost efficient manner; disruptions in the transmission and distribution of electricity; the effects of weather and other climate-change related risks; unexpected increases in cost structure; disruptions in the source of fuels, including solar, water or wind resources required to operate our facilities; failure to meet financial expectations; natural or man-made disasters, including those resulting in dam or dyke failures; the threat of domestic terrorism and cyber-attacks; equipment failure and our ability to carry out or have completed the repairs in a cost-effective manner or timely manner; commodity risk management and energy trading risks; industry risk and competition; the need to engage or rely on certain stakeholder groups and third parties; fluctuations in the value of foreign currencies and foreign political risks; the need for and availability of additional financing and our ability to obtain such financing at competitive rates or at all; structural subordination of securities; counterparty credit risk; changes in credit and market conditions; changes to our relationship with, or ownership of, TransAlta Renewables Inc.; changes to our relationship with, or the securities ownership held by, Brookfield or its affiliates or other shareholders; risks associated with development projects and acquisitions, including capital costs, permitting, labour and engineering risks; increased costs or delays in the construction or commissioning of pipelines to converted units; changes in expectations in the payment of future dividends, including from TransAlta Renewables Inc.; inadequacy or unavailability of insurance coverage; the effect of a credit rating downgrade on our energy marketing business and the impact on our financing costs; our provision for income taxes; legal, regulatory and contractual disputes and proceedings involving the Company; outcomes of investigations and disputes; reliance on key personnel; labour relations matters; and development projects and acquisitions.
Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on them, which reflect the Company’s expectations only as of the date hereof. The forward-looking statements included in this News Release are made only as of the date hereof and we do not undertake to publicly update these forward-looking statements to reflect new information, future events or otherwise, except as required by applicable laws. In light of these risks, uncertainties and assumptions, the forward-looking statements might occur to a different extent or at a different time than we have described or might not occur at all. We cannot assure that projected results or events will be achieved.
Certain financial information contained in this News Release, including EBITDA, may not be standard measures defined under International Financial Reporting Standards (“IFRS”) and may not be comparable to similar measures presented by other entities. For further information on the calculation of EBITDA in respect of the Investment and how it is calculated with regard to the Exchangeable Securities, reference can be made to the Material Change Report and the Investment Agreement, to be filed with the Canadian securities regulators on www.sedar.com and furnished with the Securities and Exchange Commission on www.edgar.com