January isn’t even half way done, and I’ve already had two of my companies receive takeover offers. The first one was FLIR Systems (Nasdaq: FLIR). Now it is Atlantic Power’s turn.
Atlantic Power (TSX: ATP / NYSE: AT) has been one of my longer term holdings, most of it purchased around the US$2 point.
I’ve written a lot about it in the past including my July 2018 post about a great company in a terrible industry.
This evening, they agreed to be acquired by i Squared Capital for US$3.03/share in cash, which is about a 44% premium to their last trade today. I Squared Capital, according to Wikipedia, has about $13 billion in assets under management, so this isn’t going to be an Input Capital type situation where the counterparty is questionable.
Other Atlantic Power securities will participate – the convertible debentures (TSX: ATP.DB.E) will be redeemed at 113.5, about a 10% premium at last trade; their preferred shares (TSX: AZP.PR.A/B/C) will all be taken out at CAD$22/share which is 27%/16%/29% above their last trade. This translates into a yield of 5.5% for the As and a 5.26% rate reset yield for B/Cs.
Until now, Atlantic Power has been one of the laggards in my portfolio. The way that this ended is somewhat bittersweet, but I’ll find a place to reallocate the capital. The power purchase agreements that were expiring would have become an issue in the next few years and I was expecting a strategic acquirer to come along.
There is a faint chance that there will be a higher bid, so I will not be selling immediately. However, I will not get my hopes up.
One thing I will be doing, however, is try to track where CEO James Moore goes to. If it is another publicly traded company I’d give it very good consideration – he was masterful.
Dang, bittersweet indeed. Thanks for the coverage of this Sacha. Totally agree that Moore did well and is worth watching.
Great work on this one. Thank you. It certainly helped me grow my position.
I think it’s a management buyout. I agree it’s worth seeing if a bump can be obtained. There are some decent shareholders on the list. Conference call and management circular will be interesting.
Vote against the deal. Prefs are $25 face, nothing less.
I think they can probably close with the preferred still outstanding. Preferred shareholders have less leverage to negotiate.
thanks for recommending this one in the past ! Picked up both common & pref’s a year or so ago. If you ever make it to SW Ont will treat you to a double double at Timmys!
I don’t get out to the middle of Canada very often, let alone the Windsor/Sarnia area (assuming that’s what you mean by SW Ontario) but I’ll take you up on this, much appreciated!
Sacha thank you for the idea, very much appreciated
https://adventuresincapitalism.com/2021/01/15/on-getting-stolen-from/
Funny, that now everyone owns some shares of this “hated” by everyone company.
Was hoping for stock to double, but can’t complain.
Thank you for writing about the company, I owe you a beer, if you ever visit Montreal.
I read Kuppy’s comments about AT being potentially “stolen” at 2.5x TTM cash. The line of “Looking at the Page 1 list this morning, I mostly see ETFs, not the sort of partners I’d want in my foxhole.” is key here – a good example is the GC buyout where you had concentrated shareholders.
I’d estimate a 1-in-25 or so chance of an increased bid. In fact at the current trade price of US$2.93/share, seems to be a reasonable place to park cash (3.4% over half a year) until it closes – much better than a GIC!
I appreciated his perspective on the cheap stocks that sit around and do nothing and then one day get scooped up.
“I remain steadfast in my view that if something stays cheap for long enough, eventually someone will do something about it and as an investor, you’ll get paid.”
I think 1/25 chance of an increased bid is way too low. This is a effectively a management buyout without a process being run. I can’t imagine a financial advisor recommending they go with their best price. Also ~20% of the float changed hands on Friday so there could be new shareholders accumulating a position. Seems like a low risk effort to stir the pot for a bump.
Why is the debenture being redeemed at 113.5? I’m under the impression they’ll be converted at $4.2 Cdn giving 238 shares – the make whole provision will likely give about 33 shares or so (linear interpolation if dates / price fall in between – assuming price converge to $3.85 CAD and close on Apr 30, 2020). 271 shares * $3.03 * 1.272 gives about $1046 / $1000.
Section of chart from the change of control – make whole provision.
Eff Date / Price 3.5 3.75 4
31-Jan-21…… 50.0686 38.5040 29.5475
31-Jan-22…… 47.6191 30.8933 21.6725
Just want to double check my math and understanding of the prospectus.
This was a result of me completely mis-reading the information while I quickly wrote the post. My 113.5 calculation was completely wrong and worse yet, based off of an incorrect calculation reading the wrong number.
Your number is much closer to reality and indeed the bid-ask spread currently corresponds to it.
On the topic of debt securities, the price of GCM.NT’s last “drag” at the cigarette will be announced today, on definitely a down day in the gold market.
Some additional colour on the sale here:
https://www.secinfo.com/d11MXs.g4N9.htm
wish I had bought more….thanks for that Sacha….looks like there may still be a play for 10cents or more.
With every good trade you always feel like it should have been bigger.
Conversely you don’t think of the scenario where the CEO/CFO turn out to be embezzlers and you lose your entire investment and think it should have been bigger.
Nice writeup and enjoyed your coverage of this stock on the blog. I was not a holder of ATP but do own PIF and your posts helped me shape how I think about that investment.
For anyone that saw the buyout presser and then looked at the pre-market trading of AT on the NYSE (bid up to $3.00) there was quick 3% scalp you could take on the open on ATP as it opened on the TSX at $3.65 CAD and promptly pushed up to match the NYSE price currency adjusted
There was about 800k that went off at CAD$3.65 at the TSX opening. PURE had trades at around CAD$3.74. 21 seconds after opening, trades happened around CAD$3.77, so there was some thin opportunity there. Most generously if round-trip transaction fees amounted to a penny, and you managed to scrape half the volume, that’s a CAD$44k scalp but of course that’s with clairvoyant hindsight.
Right now there is a 4% merger arbitrage at the close of US$2.92 which is relatively high all things considered.
Situation now picked up by Andrew Walker
Quickie idea: Atlantic Power arb / potential bidding war $AT – Yet Another Value Blog
Sacha – thoughts on this perspective?
https://yetanothervalueblog.com/2021/01/quickie-idea-atlantic-power-arb-potential-bidding-war-at.html
There are worse places to park your cash than in AT at US$2.93/share but in general I’m more bearish than other commenters on the issue of a potential higher counterbid. I do agree the risk/reward situation is acceptable, especially on the downside at the current market price.