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The Frederickson facility in Pierce County, Wash., owned by Capital Power LP (Hand-out/CAPITAL POWER INCOME L.P.)
The Frederickson facility in Pierce County, Wash., owned by Capital Power LP (Hand-out/CAPITAL POWER INCOME L.P.)

Deal gives Capital Power a sharper focus Add to ...

The $1.1-billion sale of Capital Power Income LP should help streamline the operations of its Edmonton-based parent, Capital Power Corp. , one of the most complex and diversified of Canada's electricity-generating companies.

On Monday, CPILP said it had signed a deal to have all its units picked up for $19.40 each by Atlantic Power Corp. , a Boston-based company that trades on the TSX as well as the New York Stock Exchange. Capital Power owns about 29 per cent of CPILP and currently manages its operations.

Capital Power will collect about $320-million in stock and shares for its holdings in CPILP, but the real gain is that the transaction will simplify its operations dramatically, chief executive officer Brian Vaasjo said in an interview.

"It really helps us focus the direction of the organization, the kinds of assets we are pursuing, and the geography that we like."

CPILB has twenty small power projects across Canada and the United States, generating heat and power from coal, hydro and biomass. Under the deal, Capital Power will keep just two of those CPILP power plants, both in North Carolina.

With the limited partnership out of the picture, Capital Power's portfolio will be reduced to 16 relatively large projects, concentrated in coal, gas and wind. The average size will be 250 megawatts, versus about 70 MW in the CPILP portfolio.

Capital Power won't move back into biomass or small hydro projects in the future, but it may take a look at developing solar power projects in the southwestern United States, Mr. Vaasjo said. The company has aggressive expansion plans, and on Monday it announced it had acquired two wind projects planned for east-central Alberta.

Mr. Vaasjo said Capital Power's financial statements were complicated by the existence of the limited partnership, and forced the company to manage two publicly-traded entities, so the divestiture should help simplify the company from an investor's perspective.

BMO Nesbitt Burns analyst Michael McGowan agreed that the divestiture of the trust arm "cleans up the structure," but he also noted that Capital Power is still "not 100 per cent simplified" because it is 55 per cent owned by Edmonton's Epcor Utilities Inc.

He said the company appears to have got "fairly full value" for its shares of CPILP, although it is still unclear how much cash flow will be generated by the two North Carolina plants it is keeping.

CPILP began looking for a buyer last October after its management said it was conducting a "strategic review." Mr. Vaasjo said there is always a chance that another buyer may emerge with a higher offer that Atlantic Power's, but his company has signed an undertaking that it won't solicit any other bidders.

The deal still needs to get the nod from regulators as well as shareholders of CPILP and Atlantic Power. It is expected to close in the fourth quarter.

For Atlantic Power, the purchase of the limited partnership gives it a foothold in Canada, more than doubles its power generating capacity, and diversifies its portfolio.

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