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Capital Power LP snags buyer it's been looking for

Eight months after Capital Power Income LP put itself up for sale, the company has finally secured a deal with Atlantic Power Corp. , which will purchase the firm for about $1.1-billion in cash and shares.

The deal doesn't look like most. The premium paid amounts to just 4 per cent above Friday's close and about 7 per cent to the 30-day volume-weighted average price before the company announced its strategic review. (But only 1 per cent above the latest 30-day VWAP.) Plus, investors who elect to take Atlantic Power shares will take on stock that has a lower yield than their Capital Power LP units.

The company would not elaborate on why that price was paid, but in an interview Stuart Lee, chief financial officer of parent company Capital Power Corp., did mention that there were a bunch of other interested buyers who like power generation cash flows, whether they be rival firms or infrastructure funds.

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However, the low premium isn't all that shocking. Back in October when Capital Power LP announced its strategic review, BMO Nesbitt Burns analyst Michael McGowan pointed out that the partnership already had a high value and therefore might not command a high takeout premium.

At the moment, Capital Power Corp. , the parent company, owns about 30 per cent of Capital Power Income LP. Despite this stake, the corporation has said from the get-go that it did not want to buy the rest of the limited partnership. That's because the limited partnership has a number of hydroelectric assets that the corporation did not want, and the LP's assets are generally smaller in size, Mr. Lee said. However, the corporation did buy some of the LP's North Carolina assets on Monday, which will not be included in the Atlantic Power deal.

Atlantic Power, on the other hand, got involved because it currently has no assets in Canada, so the purchase diversifies its geographic base. The company is also selling "dividend stability" as a driving factor. Atlantic Power wants to keep increasing its dividend and bringing Capital Power LP's cash flow into its fold will help it do so. In fact, the company already announced a 5 per cent dividend increase to $1.15 per share annually.

Combined with its new acquisition, Atlantic Power's market capitalization will almost double to about $2-billion. To pay for this bulking up, the company has taken on $623-million in bridge financing over the short term, which it expects to refinance with $200-million in equity and $423-million of debt.

There are a slew of advisers on the deal. TD Securities and Morgan Stanley acted as financial advisers for Atlantic Power, and Goodmans LLP was lead legal counsel.

CIBC World Markets and Greenhill are Capital Power's financial advisers to CPILP, with Fraser Milner Casgrain LLP and Norton Rose LLP acting as legal counsel.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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