Fort Chicago Energy Partners LP is beefing up it electricity generation business in Ontario and British Columbia through a planned $314-million acquisition of Pristine Power Inc.
"The location of Pristine's assets will allow us to leverage our existing operating presence in Ontario and B.C.," Fort Chicago chief executive officer Stephen White told a conference call with analysts Wednesday, a few hours after both companies announced the friendly transaction.
"It reinforces the strong geographic fit of the Pristine assets with our existing power facilities."
The deal continues a wave of consolidation in the Canadian power business as smaller players needing access to capital seek to become part of bigger companies with the financial muscle to help finance the large costs of building power plants.
In late 2009, Calgary-based power producer TransAlta Corp. acquired Canadian Hydro Developers, a smaller company involved in hydroelectric, wind and other forms of cleaner power.
And last week, the CEO of junior Ram Power Corp. told a conference that consolidation that has already hit the geothermal industry will continue and further cut the number of publicly traded companies.
Hezy Ram said geothermal power that taps underground heat to produce electricity has higher upfront development costs than other types of alternative energy so mergers are more likely as companies look to get bigger to afford expensive projects.
In the Fort Chicago deal, the company, part-owner of the Alliance natural gas pipeline, is assuming $195-million in Pristine debt.
Pristine's board of directors has accepted the share-swap bid, which values each Pristine share at $3.05. That represents a premium of about 17 per cent over the Calgary company's closing stock price of $2.60 on Tuesday.
"After evaluating several alternatives and taking into consideration the stage of the corporation, its growth prospects and access to necessary capital to deliver on such growth, we believe the Fort Chicago offer provides the best value for Pristine security holders," said Pristine CEO Jeffry Myers.
"This combination with Fort Chicago will catalyze Fort Chicago's growing power business through the addition of Pristine's successful pipeline of assets and robust development pipeline. In addition, Pristine securityholders will also benefit from exposure to Fort Chicago's diverse suite of assets as well as from monthly cash distributions."
Fort Chicago recently acquired B.C. hydroelectric producer Swift Power Corp., as well as some hydro assets from Enmax Corp., an energy distributor and supplier owned by the City of Calgary.
"We believe the acquisition of Pristine, in conjunction with our recently completed announced acquisitions in B.C., represents a third fundamental transformative change to our power business, all undertaken to achieve our key strategic investment objectives," Mr. White said on the call.
Pristine's assets include:
- A 50 per cent stake in the York Energy Centre, a 400 megawatt natural-gas fired generating plant north of Toronto, which is expected to begin commercial production in 2012. The plant is slated to cost $337-million.
- A 25 per cent interest in the East Windsor Cogeneration Centre, an 85 MW natural gas cogeneration plant beside a Ford Motor Co. of Canada engine plant. Fort Chicago currently holds a 50 per cent stake in East Windsor, which produces power and steam for industrial uses.
- A 75 per cent interest in two energy recovery plants at the Savona and 150 Mile House compressor stations of the Spectra Energy pipeline system in British Columbia.
Pristine has agreed to pay Fort Chicago a non-completion fee of $3-million if the transaction fails.
Fort Chicago and Enbridge Inc. are partners in the Alliance pipeline, which ships Western Canadian natural gas to the United States. Fort Chicago is also involved in the Alberta Ethane Gathering system, a gas liquids extraction operation which includes an interest in a big plant near Chicago.
Fort Chicago's power business includes generating plants in Ontario, New York, Colorado and California, district energy systems in Ontario and Prince Edward Island, waste heat power operations along the Alliance pipeline and renewable power projects in British Columbia.