TransAlta Closes Acquisition of Heartland Generation

December 10, 2024

TransAlta Corporation announced that it has completed its acquisition of Heartland Generation Ltd. and Alberta Power (2000) Ltd. (collectively, Heartland) from Energy Capital Partners (ECP). The acquisition, which includes Heartland’s entire business operations in Alberta and British Columbia, was completed for an aggregate purchase price of $542 million, reduced by approximately $95 million to reflect the economic benefit of the Heartland business arising since October 31, 2023, resulting in a net cash payment of $215 million before working capital adjustments.

As previously disclosed, in order to meet the requirements of the federal Competition Bureau, TransAlta entered into a consent agreement with the Commissioner of Competition pursuant to which TransAlta agreed to divest Heartland’s Poplar Hill and Rainbow Lake assets following closing. ECP will be entitled to receive the proceeds from the divestiture. The sales process for these assets will be commenced shortly.

Highlights

• TransAlta and ECP have agreed to an $80 million purchase price reduction to reflect two required asset divestitures representing 97 MW (net ownership)
• Transaction revalued at approximately $542 million, inclusive of the assumption of $232 million of low-cost debt, and subject to a further favourable economic adjustment of approximately $80 million, reflecting the economic benefit of the Heartland business arising since the effective date of the transaction of October 31, 2023, prior to working capital adjustments
• Heartland portfolio valued at a net price of approximately $270 per kilowatt, with an expected EBITDA multiple¹ of approximately 5.4 times
• Highly accretive to free cash flow, with an attractive cash yield upon closing underpinned by approximately 60% of revenues contracted with a weighted-average remaining life of 15 years
• Corporate pre-tax synergies of approximately $20 million per annum
• Transaction to add 1,747 MW (net interest) of complementary capacity, including contracted cogeneration and peaking generation, legacy gas-fired thermal generation, transmission capacity, and potential hydrogen development opportunities, all of which will be critical to support reliability in the Alberta electricity market
• Enhances and further diversifies TransAlta’s competitive portfolio in the highly dynamic and shifting electricity landscape in Alberta

The transaction is strategically attractive to TransAlta and provides the following benefits:

• Expands Flexible Generation Capabilities: Augments and diversifies TransAlta’s portfolio in Alberta’s current energy-only market by expanding its flexible, fast-ramping capacity and marketing capabilities to enhance our ability to respond to changing market conditions stemming from the intermittency of increasing renewable generation.
• Maintains Attractive Transaction Metrics: The acquisition is highly accretive to free cash flow with an attractive multiple and strong cash yield. The Transaction, net of economic adjustment, values the portfolio of assets at approximately $270 per kilowatt, well below the replacement cost of current and other forms of reliable generation, providing a low-cost expansion of our ability to deliver reliable generation to the market demands of Alberta.
• Delivers Highly Contracted Cash Flow: Post-closing, the assets are expected to add approximately $85 to $90 million of average annual EBITDA² after factoring synergies and the divestitures of Poplar Hill and Rainbow Lake. Approximately 60 per cent of revenues are under contract with high creditworthy counterparties which have a weighted-average remaining contract life of 15 years.
• Near-term Synergies: TransAlta will continue to leverage corporate costs within our existing business which will provide estimated corporate pre-tax synergies of approximately $20 million per annum. In addition, the combined portfolio will enable the Company to further optimize operations and supply chains through scale to achieve additional synergies.
• Builds On Regional Expertise: The Company is well positioned to deliver significant value through our deep technical and local operational experience which, together with our 113-year history in Alberta, will ensure continuing safe and reliable generation in a dynamic and evolving landscape.

Source