To the surprise of many, the management of Capital Power Income LP, which is 30 per cent owned by Capital Power Corp. , announced on Tuesday that the partnership has been put under strategic review.
Management said the review is not in response to a proposed transaction. Instead, they are simply trying to maximize value for both unitholders of CPX and the parent partnership.
Their review could spawn a number of outcomes, including a sale of the partnership to a third party. The only thing that is for certain is that Capital Power Corp. will not be buying the partnership by adding to its current 30 per cent stake. As TD Securities analyst Robert Hope pointed out in a note, the corporation said the partnership's higher cost of capital makes it too expensive to buy assets that do not match its networked hub strategy.
The strategic review is going to play out over the next few months and in the mean time the corporation will keep managing CPILP's assets.
Because the details are so scarce, analysts still aren't 100 per cent sure of what to make of the news. TD noted that selling CPILP to a third party could simplify the corporation's structure and generate proceeds the corporation could use to finance growth projects and acquisitions. But Michael McGowan at BMO Nesbitt Burns also pointed out that the partnership already has a high value and may not command a high takeout premium.
Capital Power Income LP is the former EPCOR Power LP, which was formally renamed in 2009. Capital Power Corp. owns a 30 per cent stake in the partnership and was spun off in the same year through an IPO.
*The post has been updated because CPILP was incorrectly identified as the parent company. CPX is the parent.
Tim Kiladze