TransAlta has declared a victory in an important battle against activist investors, saying it has secured enough votes from shareholders to elect its slate of candidates to the company’s board.
The development comes as New York-based Mangrove Partners Master Fund Ltd. is suing TransAlta Corporation to stop a $750-million investment from Brookfield Renewable Partners LP. Mangrove is one of three U.S. funds that took a position in TransAlta early this year and has been agitating for quick change at the Calgary company, which has been unwinding its coal-based assets to focus on a green future.
The Brookfield deal, announced in late March, was to jump-start that process, with the money earmarked for debt reduction and a share buyback, in addition to more spending on renewables. Two top Brookfield executives, Harry Goldgut and Richard Legault, are to join the TransAlta board as part of the deal.
Mangrove and its fellow investors have argued that the deal was hasty, designed to head off their proxy battle, and needed to be halted so TransAlta could consider other options for its hydroelectric assets, which Brookfield will ultimately co-own. Mangrove made an attempt to get securities regulators to order a postponement of TransAlta’s annual meeting, scheduled for Friday, and have now sued.
“The transaction was not motivated by a desire to act in the best interests of TransAlta’s shareholders, but rather was designed to entrench TransAlta’s board of directors and to frustrate the plaintiff’s efforts to elect a highly qualified minority slate of directors who would enhance the value of TransAlta,” Mangrove said in its statement of claim, filed at Ontario Superior Court of Justice on Tuesday.
Before filing the claim, Mangrove was allied with Bluescape Energy Partners, and together they controlled more than 10 per cent of TransAlta’s outstanding shares. However, they are no longer acting jointly, said Mangrove, which owns 7.1 per cent of TransAlta on its own.
Late Tuesday, TransAlta fired back. “Mangrove’s latest claim is without merit and is simply the latest complaint in a string of frivolous tactics. We will defend TransAlta and the interests of our shareholders vigorously,” said Gordon Giffin, chair of the board of TransAlta. “A majority of our shareholders have already voted overwhelmingly in support of the Board at our upcoming meeting. We look forward to moving ahead with our value creation plan supported by our partnership with Brookfield.”
Brookfield said it will buy more shares until its ownership rises to 9 per cent, up from nearly 5 per cent currently. TransAlta is also nominating Robert Flexon, former chief executive officer of U.S. power producer Dynegy Inc., as a director.
The arrangement has the support of TransAlta’s largest shareholder, RBC Global Asset Management, and proxy advisory firms Institutional Shareholder Services Inc. and Glass, Lewis & Co. have recommended investors vote in favour of the company’s director slate.
In its statement of claim, Mangrove detailed how it had been in discussions about ways to boost TransAlta’s value in the weeks before the Brookfield deal was announced. Mangrove also claims that Brookfield had made an overture to merge with TransAlta, then spin off similar operations as stand-alone companies, in 2015. That same year, and then two years later, Mangrove says, Brookfield along with partners offered to purchase all the shares of TransAlta, floating ultimately unsuccessful proposals. It did not disclose the source of the information.
“The TransAlta board has made every effort to obscure the true process by which the Brookfield transaction came to pass and their motives for entrenching themselves at the expense of shareholders,” Mangrove founder Nathaniel August said in a statement Tuesday. “As a large and engaged shareholder of TransAlta, we cannot allow this conduct by the board and its special committee to go unchallenged.”