“Bittersweet” is the word I used to describe the acquisition of Atlantic Power (TSX: ATP), and also the words that James Moore used as well in his conference call.
“Bittersweet” is also the word I’m going to use to describe my exit out of the stock yesterday.
I did not view the chances of a higher bid to be likely and I should have pounded my shares out of the exit a couple days after the merger was announced (which got up to a high of US$3.06, compared to the proposed cash acquisition of US$3.03 – this was on January 20th and the merger announcement was on the evening of January 14th). Instead, I took a ~5% hit from the proposed price and paid a fairly hefty merger arbitrage spread.
The reason was simple – they announced they received 90% of the medium term note holders’ consents for the merger, but the following paragraph was in yesterday’s press release:
Atlantic Power also announced today that the meeting (the “Debentureholder Meeting”) of holders (“Debentureholders”) of its 6.00% Series E convertible unsecured subordinated debentures due January 31, 2025 initially scheduled to be held on March 18, 2021 at 10:00 a.m. ( Toronto time) is being adjourned to Wednesday, April 7, 2021 at 12:00 p.m. ( Toronto time) to allow additional time to solicit proxies.
This is not good news.
All parts of the capital structure require a 2/3rds vote to approve the merger. Quorum is 25%, which should not be the limiting constraint at this point.
If proxies were received that already expressed approval for the merger to that quantity, the meeting would have been held and one more hoop would have been jumped through for merger completion. It is a virtual guarantee that an insufficient number of votes or an insufficient number of affirmative votes has been received to date.
If they held the meeting and did not receive the 2/3rds supermajority, the vote would have failed and the merger would have to been renegotiated (which leads to all sorts of other risks).
The adjournment of this vote does not bode well for the overall merger.
We do not know how many votes have been received in favour or against.
The risk has been elevated significantly leading up to the April 7th shareholder vote.
Although iSquared is raising debt financing in preparation for the merger, if the entire capital structure of Atlantic Power does not go along with this, iSquared has the right to terminate the merger.
This will most certainly involve the common shares trading back down to the US$2.00-$2.20 level (and the preferred shareholders will most certainly head down to around the $17-18 level).
Just imagine you are the management of the company and the merger fails due to a negative vote. Mentally, you’ve already checked out and are preparing to transition out of the company. Instead, your shareholders (or possibly in this case, your debtholders) have blocked your exit. What do you do? It’s not an easy position to be in. You can sell your stake in the company (Moore owns more than a million shares and was prepared to receive a significant golden parachute) and get out of there. Another option is staying on board and just keep status quo and clipping paycheques while the stock languishes.
Another possibility is that iSquared will pay off the debentureholders. Indeed, given how ATP.DB.E is virtually guaranteed to get paid out no matter what happens (maturity is January 2025), why not be a pain in the ass and ask for more?
I’d estimate the risk of a failed vote happening to be about 20% at present. Not too high, but enough for me to punch out the clock and take the bird in the hand rather than two in the bush. To say the least, this has been a sloppy exit, but at least the rapidly depreciating cash that is sitting in the account will eventually find a better home.
I’ve dumped my stock a week ago, when read about possible class actions.
But looks like it is not a big deal comparing to yesterday’s press release.
Thanks for keeping us updated! 🙂
thanks for the update! Had sold the common last month but still have some prefs. Question will be where to invest the proceeds ……….
Will you who sold still vote in favour of the deal with your proxies? It seems we might need all the help we can get.
I think it’s possible they delayed the convert holders meeting to early April because the staggered meeting dates opened up a window for common and preferred shareholders to ask for a bump in between. They already have 19% locked up on the converts so hopefully it’s not too high a bar to get approval.
The delay in the convert meeting might have always been the plan to increase uncertainty for shareholders to incentivize a yes vote and deter requests for a bump.
Of course, they will delay the April 7 meetings, if they don’t have enough proxies in by then as well. There is no reason they wouldn’t try to give themselves more than one bite at the apple before walking away from the deal.
I’ve got my email to vote on March 10, and voted YES right away.
I reduced my position in AZP.PR.C by 2/3 at an avg of about $21.90. Voted for the deal. If this deal fails, I may buy them back.
It’s also possible less than 25% of p.a. voted, which is not uncommon for debentures. If 24% voted and they were all in favor, the deal will still go ahead. If this indenture is like most others, the meeting gets adjourned for a week and whoever shows up at the next meeting forms a quorum.
They already had 19% locked up so the bar was low.
ATP filed a proxy supplement today adding in a line and a financial project table. In my experience this (a supplement disclosing this particular type of information) is very, very unusual at this late stage of the vote:
https://www.secinfo.com/d11MXs.g1aBe.htm
If I was going to put odds on this, I’d say now there’s a 2/3rds chance of the deal succeeding.
Presumably, if they don’t have the votes on any of the securities on April 7, won’t they just extend the timeline? They don’t have all of the regulatory approvals do they?
If they do need to bump, how much would it cost? US$5m for each security would probably do the trick, if necessary, in my view. Is 1.5% more consideration enough to walk?
I think the big constraint is FERC approval which I don’t think would be a problem?
We’ll probably know around April 5th whether they’ll adjourn. But this whole situation is just simply odd. It isn’t how things look if it was proceeding in a textbook manner. I don’t know how much iSquared wants this or even who they’d be negotiating with at this point. They don’t pay a break fee if the vote is negatived.
More amendments to the solicition… it’s looking like the preferred shares are not going along with this:
“In connection with the Pre-Acquisition Reorganization requested by the Purchasers, it is contemplated that preferred shares in the capital of Atlantic Power will be created and issued immediately prior to the Effective Time.”
If I’m interpreting this correctly, the commons are accepting this but the preferred shareholders are not.
I didn’t have that takeaway but it might just be over my head.
I thought the change was simply procedural to help effect the transaction.
FERC approval today. Now all that’s left is the vote on the 7th (if not adjourned).
They adjourned the convert meeting two nights before suggesting the vote might be in hand. How quick could they close if they get the votes?
I think it’s a wire transfer away at this point. The FERC approval I think was the last stepping stone (which was very likely to happen regardless).
Common shareholders approved it, 7am Pacific. Preferred sharesholders up at 8am, and then debentures at 9am. These meetings are so ‘exciting’ no wonder nobody signs in…
8:00am… preferred shareholder resolution approved. Coming up, 9am, debentures…
The elevator music they have playing is rather therapeutic.
Looks like a mostly done deal, but the convertibles are not going along, which is interesting –
Atlantic Power also announced today that the parties intend to close the Transaction without the approval of the holders of the Company’s 6.00% Series E convertible unsecured subordinated debentures due January 31, 2025 (the “Convertible Debentures”) since less than two-thirds of the votes cast to date by holders of Convertible Debentures have been in favor of the Transaction. Atlantic Power and the Purchasers are currently working though the steps required to close the Transaction without the approval of holders of Convertible Debentures, while still offering the benefit of the “make whole premium” contemplated by the indenture governing the Convertible Debentures. Additional details will be provided once these steps are substantially finalized.
well that was a pretty exciting 9am adjournment meeting.
I could see them not wanting to accept the deal; perhaps the make whole premium isn’t enough for giving up the potential $4.20 conversion that has 3.5 years remaining on it.
“On or after January 31, 2023 and prior to the Maturity Date, we may redeem the Debentures in whole or in part at our option, on not more than 60 days and not less than 30 days prior notice, at a redemption price equal to their principal amount plus accrued and unpaid interest, if any, up to but excluding the date set for redemption. See “Description of the Debentures— Redemption and Purchase.””
There’s 1.8 years left to the term of this debt, so at around 300bps, the debentures should be worth about 105.2 today, or if you think 250bps, then about 1.06, plus whatever call option value is worth (which is about 10% under the money at the US$3.03 takeout price). I can definitely see them not wanting to take par value.
I haven’t worked it out in a while but I think the offer works out to around 104.5 now. I didn’t really understand why the convert holders needed a vote in the first place as I thought there was a change of control provision to compensate for the lost optionality in the original indenture.