Bulked-up Canadian Hydro increases sales, suitors

Canadian Hydro Developers doubles in size as wind farms come online, fueling free cash flow, resisting a TransAlta takeover bid, and advancing solar in Ontario and hydro in Alberta despite a quarterly earnings slump.

A bulked-up Canadian Hydro Developers Inc said it is big enough to pursue large renewable power projects on its own and has no need for an "inadequate" takeover bid from TransAlta Corp.

Over the past eight months, the company marked a "key inflection point", its chief executive said, doubling in size as two large wind farms began producing power, while peers like TransAlta advance a greener coal strategy as well.

That corporate growth spurt will produce positive quarter-over-quarter gains through 2009 and 2010 and generate enough free cash flow to fund the equity portion of developing one 100-megawatt project annually.

"We've successfully doubled the size of our company, despite the worldwide economic downturn and we look forward to reaping the benefits of our growth," CEO Kent Brown said on a conference call.

TransAlta, Canada's biggest pure-play electricity company, made a $4.55 per share, $654 million takeover offer for Canadian Hydro in July. Canadian Hydro continues urging shareholders to reject the bid, saying it is opportunistic and inadequate.

Canadian Hydro's large, institutional shareholders have said they are not interested in the bid, Brown said, and would need a "much, much higher" offer to tender their stock.

Canadian Hydro has opened a data room, which provides confidential corporate information to potential buyers, in the hopes of luring a sweeter offer. It has attracted national and international companies, rivals, and financial players, including interest from TransAlta among others, Brown said.

"We're looking at everything, the whole range of the spectrum from the beginnings of continuing on as an independent company...up to and including a full sale," he said. "There's a tremendous amount of possibilities and lots of activity."

Meanwhile, Canadian Hydro Developers is pushing ahead with new power projects.

It said it is closely watching the solar energy market, with prospects in Ontario that could produce 30 MW of power.

Company founder John Keating has recently developed a tracking system, aimed at improving the economics of solar technology. It will soon be tested on pilot projects.

The Dunvegan hydro-electric project in Alberta will also advance, as the company seeks construction permits and an investment partner.

The company said quarterly earnings slumped 99 percent on higher amortization and interest expenses from two big wind farms and smaller foreign exchange gains.

Profit fell to $23,000 (US$21,296), or nil per share, for the three months ended June 30. That compares with a profit of $2.88 million, or 2 Canadian cents a share, a year earlier, while TransAlta profit trends underscored sector volatility at the time.

Revenue rose 33 percent to $26.15 million, even as Hydro One profits fell on warmer weather and storm repairs across the sector.

Analysts, on average, had forecast a profit of 1 Canadian cent a share and revenue of $27.57 million, and Hydro One news offered additional context for utilities results that quarter, according to Reuters Estimates.

The company said its amortization expense jumped 58 percent as it completed the Melancthon 2 and Wolfe Island wind farms in Ontario, which have a higher capital cost than existing plants.

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