AT - Atlantic Power Corp

[valueinvestor]

This is probably one of the reasons why value stocks have plummeted, because of actions such as these. I get that there has to be room for management to take a profit - but I don't understand why they can't pay a small premium on fair value, especially if they are going to make a lot more in the private market. A transaction like this - with the assets that they have - and the ability to be a private company and full control - it's not much of a risk to pay what's fair.

 

Not complaining but it's not the first time we saw value stocks being taken under or an activist coming in and selling it to the highest bidder or stripping it before moving on. 

 

 

[SafetyinNumbers]

Kuppy weighing in

 

https://adventuresincapitalism.com/2021/01/15/on-getting-stolen-from/

[longlake95]

Can someone post a screen shot of the top holders of AT/ATP common?

 

[ander]

I am only speaking to the common shares. This proposal is grossly inadequate. I Squared is buying this for substantial upside. They are not paying $3 in the hopes of selling at $4, but more likely are betting on getting $6 to $9 of value.

 

Moore has preached a value based investment philosophy. He has been frustrated by the stock price as he indicated this morning given the progress that they have made. He now points to all the risks (we might not renew, FCF will be hard to cover MTN and Prefs) and wants to convince the shareholders it is time to sell (btw the referenced sales process in 2014 is a useless comparison). He points to how they have a declining EBITDA base and it is hard to get a multiple in the public markets for that situation - true, but it is much closer to leveling out -- and once Frederickson / Curtis Palmer renewals occur, the long-term visibility will become evident. Instead that visibility and re-rating of value will not happen in the public markets but in private hands where management will be rewarded handsomely.

 

As a Buffett fan, I'm sure Moore is fully aware that in this sale price is what you will be paid and value is what you give away. To point to the last 5 year stock price is misplaced. Yes, it is is frustrating given the progress that management has made and I would not have expected the stock price to have been here, but that is the opportunity as a public securities investor!! I have followed this company for 5 years and finally bought last year -- thinking that I was likely buying a $6+ for $2. Selling something worth $6+ for $3 is not satisfying.

 

I will be voting "No" re: this transaction. I'm happy for the stock price to settle back at $2.50 or whatever and work its way much higher as the team executes.

[Nelg]

Can someone post a screen shot of the top holders of AT/ATP common?

 

Not sure how to post screenshots/images (is this forum ever going to enter the 21st century???), but see the below top 10 holders as of Sept 30:

 

Firm: # Shares Held / % of CSO

 

Neuberger Berman BD LLC:  7,290,977 8.172%

J.P. Morgan Asset Management, Inc.:  4,859,512 5.447%

BlackRock, Inc. (NYSE:BLK):  4,638,420 5.199%

Connor, Clark & Lunn Investment Management Ltd.:  3,644,859 4.085%

The Vanguard Group, Inc.:  3,312,927 3.713%

Mangrove Partners:  2,969,505 3.328%

Walthausen & Co., LLC:  1,961,490 2.198%

State Street Global Advisors, Inc.:  1,480,296 1.659%

RMB Capital Management, LLC:  1,400,000 1.569%

BNY Mellon Asset Management:  1,166,513 1.307%

 

Notes:

- Neuberger Berman: has held their stake for several years, and hasn't bought or sold much in the last couple years

- Connor, Clark & Lunn: increased their stake by 58% in Q3, and has been a long-time shareholder

- Mangrove Partners: used to be the largest shareholder a few years ago, then sold 71% of their shares in Q2, before buying back some of it in Q3

 

It's interesting that the only 2 questions on this morning's call were basically: 1) did you run a fully-marketed process, and 2) what's the break fee if someone tops your offer?

 

From the CEO's comments to question #1, it seems like there was no formal marketing process other than the 2014 one which as previously mentioned is a completely meaningless comparison. Anyway, I'm also in the same mindset as ander.

[doc75]

Can someone post a screen shot of the top holders of AT/ATP common?

 

Not sure how to post screenshots/images (is this forum ever going to enter the 21st century???), but see the below top 10 holders as of Sept 30:

 

Firm: # Shares Held / % of CSO

 

Neuberger Berman BD LLC:  7,290,977 8.172%

J.P. Morgan Asset Management, Inc.:  4,859,512 5.447%

BlackRock, Inc. (NYSE:BLK):  4,638,420 5.199%

Connor, Clark & Lunn Investment Management Ltd.:  3,644,859 4.085%

The Vanguard Group, Inc.:  3,312,927 3.713%

Mangrove Partners:  2,969,505 3.328%

Walthausen & Co., LLC:  1,961,490 2.198%

State Street Global Advisors, Inc.:  1,480,296 1.659%

RMB Capital Management, LLC:  1,400,000 1.569%

BNY Mellon Asset Management:  1,166,513 1.307%

 

Notes:

- Neuberger Berman: has held their stake for several years, and hasn't bought or sold much in the last couple years

- Connor, Clark & Lunn: increased their stake by 58% in Q3, and has been a long-time shareholder

- Mangrove Partners: used to be the largest shareholder a few years ago, then sold 71% of their shares in Q2, before buying back some of it in Q3

 

It's interesting that the only 2 questions on this morning's call were basically: 1) did you run a fully-marketed process, and 2) what's the break fee if someone tops your offer?

 

From the CEO's comments to question #1, it seems like there was no formal marketing process other than the 2014 one which as previously mentioned is a completely meaningless comparison. Anyway, I'm also in the same mindset as ander.

 

Do you think his calculus has changed in any way due to the dems taking control of senate?  I don't think this was really on the radar on the Q3 call. 

 

It sure seems that his tune has changed.  The simplest explanation is that he is speaking for his own best interest.  But I wonder if he may also

foresee several policy-based headwinds now that the dems are in full control.

 

 

 

[ander]

Unlikely his calculus changed. He had answered what his views were prior to the election - that regardless of outcome he was happy (though most mgmt teams say that, he went further for quite some time and in detail to explain why). Like some of their assets are likely to benefit b/c of likely federal policy. Some are driven by local market dynamics, etc.

 

His tune was pre-scripted and he didn't answer any real questions on the 11 minute call b/c he didn't want to go off script (as he himself said) and he didn't know what had been disclosed b/c of legal reasons. So the call was basically this is good for everyone and please vote yes.

 

 

 

Do you think his calculus has changed in any way due to the dems taking control of senate?  I don't think this was really on the radar on the Q3 call. 

 

It sure seems that his tune has changed.  The simplest explanation is that he is speaking for his own best interest.  But I wonder if he may also

foresee several policy-based headwinds now that the dems are in full control.

 

 

 

[SafetyinNumbers]

In my experience, it’s doubtful in a management led buyout without running a process that, I Squared put forth the highest price they are willing to pay. I assume they are expecting to bump for the common and the pref.

 

With 18m+ shares trading today, up to 20% of the company changed hands. Hopefully into strong hands that will play hardball.

 

 

[ander]

In my experience, it’s doubtful in a management led buyout without running a process that, I Squared put forth the highest price they are willing to pay. I assume they are expecting to bump for the common and the pref.

 

With 18m+ shares trading today, up to 20% of the company changed hands. Hopefully into strong hands that will play hardball.

 

 

 

100% agree.

[SafetyinNumbers]

This is a good blog that I think encapsulates the case for a bump well.

 

https://yetanothervalueblog.com/2021/01/quickie-idea-atlantic-power-arb-potential-bidding-war-at.html

[ander]

Agree.

 

Same article posted on SeekingAlpha.

https://seekingalpha.com/article/4399674

 

[wisowis]

The spread is smaller in the prefs, why? They are taking them out, but they aren't obligated to take them out right? so there could be a bump in the offer at the common and not the pref, or worse, they bump their offer for the common but modify the deal to leave the prefs outstanding? Is that a real possibility?

 

Thinking of switching out of my prefs to the commons for the last bit of juice, so trying to handicap the risk/reward between the two. Also don't know if they will continue with the Q1 and (possibly prorated) Q2 distributions of the prefs yet..?

[bizaro86]

The spread is smaller in the prefs, why? They are taking them out, but they aren't obligated to take them out right? so there could be a bump in the offer at the common and not the pref, or worse, they bump their offer for the common but modify the deal to leave the prefs outstanding? Is that a real possibility?

 

Thinking of switching out of my prefs to the commons for the last bit of juice, so trying to handicap the risk/reward between the two. Also don't know if they will continue with the Q1 and (possibly prorated) Q2 distributions of the prefs yet..?

 

The difference in spread is probably at least possibly because the prefs will keep paying dividends between now and close while the common won't.

 

 

[wisowis]

They posted a new Q&A today (see https://investors.atlanticpower.com/download/ATP+Acquisition+by+I+Squared+Capital_Additional+Investor+Q%26A_2021.01.22.pdf) and it happens to answer my question above about the preferred share distributions:

 

 

Q. Will there be prorated dividends if the transaction closes mid-quarter?

A. The preferred shares will be arranged as part of the court approved plan of arrangement

and that arrangement does not contemplate the payment of a prorated, mid-quarter,

dividend on closing. Holders of preferred shares will, however, continue to receive

ordinary course quarterly dividends, if and when declared by the board.

[StubbleJumper]

They posted a new Q&A today (see https://investors.atlanticpower.com/download/ATP+Acquisition+by+I+Squared+Capital_Additional+Investor+Q%26A_2021.01.22.pdf) and it happens to answer my question above about the preferred share distributions:

 

 

Q. Will there be prorated dividends if the transaction closes mid-quarter?

A. The preferred shares will be arranged as part of the court approved plan of arrangement

and that arrangement does not contemplate the payment of a prorated, mid-quarter,

dividend on closing. Holders of preferred shares will, however, continue to receive

ordinary course quarterly dividends, if and when declared by the board.

 

 

Thanks for sharing the new Q&A.  The primary issue for pref holders will be the $22 price rather than the possibility of not getting a 10-cent prorated dividend. 

 

Just ruminating about your post from earlier this week.  Has anyone been done additional research during the past week to better understand I-Square's motivation for offering to buy the prefs and the potential consequence for I-Square of withdrawing that component of this offer?  My reading of the propaganda is that the offer is structured such that approval is currently needed from every class of capital (term-loan, MTNs, debs, commons and prefs).  The pref holders could sink this offer, but as you noted earlier in the week, that might carry the risk that a replacement offer could be made which entirely excludes the prefs.

 

So, is I-Square's principal motivation with respect to the prefs simply an effort to disentangle itself from Canadian securities regulation?  I definitely understand that I-square might prefer to not file Canadian financial statements and there might be some aspect of the pref guarantee indentures which could become inconvenient.  But what's that worth in dollars?  The prefs have a par value of about US$169m, so the repurchase offer is notionally shorting the pref holders by about US$17m.  Is getting rid of the prefs worth US$17m more? Is it even worth Cdn$22/sh to begin with? 

 

 

SJ

[wisowis]

Yeah, those questions cause me a lot of discomfort StubbleJumper.

 

I sold my A prefs for the takeover price today.

 

If shareholders vote in favour, all I've given up is a quarterly distribution.

If pref shareholders vote against, then the outcomes are either a bump to the offer (but probably capped at par value of 25$) or they leave them outstanding. I don't know if the latter outcome is more likely in the unlikely scenario that prefs vote against and commons vote for.

 

Upside is limited, but more importantly, I have no idea how to handicap the downside. So I exited.

 

I hope the person I sold them to manages to squeeze a few more dollars out of i^2 though :)

 

[RichardGibbons]

Funny, I did the exact same thing today with the Bs, based on the exact same reasoning.

[Philbert77]

So what's the consensus? I've unloaded the commons at pretty much buyout offer but I continue to hold the A,B,Cs. My sense is that $22 is a fair offer. I don't want to see a bunch of people voting down the offer and torpedoing the whole deal. Or leaving the preferred shares outstanding...

 

 

[RichardGibbons]

I think $22 is slightly unfair, because with the $25 call price, there's a bit of an implied promise that that's the level they'd be taken out at, if they were to be taken out.  But it's not really unfair, considering the price at which the shares have traded at for years.

 

It's also worth noting that during an acquisition, it's possible for preferred shares to not just remain outstanding, but also be delisted. I vaguely recall this happening with a public company (maybe a REIT) something like 15 years ago. That vague memory did influence on my decision to dump the Atlantic Power's preferreds early.

[StubbleJumper]

IMO, a torpedo of the whole deal wouldn't be a terrible outcome for a pref holder.  AT is rapidly repaying its debt, and even if some of the PPAs do not get renewed, the prefs are effectively being de-risked.  My guess has been that credit spreads would tighten over the next 3 years anyway, so $22 for the prefs is really not much of a windfall.  If the buyout falls apart, the prefs are probably money-good by 2023 or 2024 anyway.

 

As Richard noted, the worst outcome would probably be that the prefs don't get bought out and retired as part of the takeover.  If you end up with no secondary market and if you get unlucky and the new owner is abusive with pref holders, it's not inconceivable to be stuck with prefs that you cannot sell and for which the dividend is arbitrarily suspended.  The second worst outcome might be a situation where you have no secondary market, but I-Square continues to merrily pump out the quarterly dividends forever and ever -- while that scenario would be a piss-off, economically it wouldn't be such a terrible outcome.

 

At this point, I am leaning towards departing paths with Widowis and Richard.  I plan to wait and see what happens with the takeover.  From where I sit, the prefs are the only class of capital that has much of a risk of voting no (but the common holders are also belly-aching a bit).  If the only impediment to completing this acquisition is a small sweetener for the prefs and perhaps a small sweetener for the commons, I am guessing that a second offer would be made.

 

So how do you handicap it?  Maybe something like this:

 

80% likelihood that all classes of capital approve the first offer

15% likelihood that the first offer is voted down by at least one class of capital, but a sweetener is added and the second offer is approved

4% chance that I-square simply walks away after the first offer is voted down

1% chance that the offer gets reworked to exclude the prefs and the prefs end up with no secondary market

[SafetyinNumbers]

We haven't seen the management circular yet. It's unlikely we'll see any institutional shareholders complaining until that happens.

 

 

[ander]

Read through the proxy. Does not change my view. A process for sale was not conducted. I Squared obviously sees value. Proxy almost written like I Squared doing shareholders a favor (ridiculous) and that I Squared was looking to re-trade the deal down. I would speculate management does well with I Squared going forward.

[SafetyinNumbers]

It was pretty easy to tell there wasn’t a real negotiation with the range provided by I-Squared between $2.75-3.00 and the counter offer coming in at $3.03 which was accepted the next day.

 

If a shareholder is going to raise a fuss, it should be in the next few weeks. Seems like an easy ask for a meaningful bump.

[ander]

It was pretty easy to tell there wasn’t a real negotiation with the range provided by I-Squared between $2.75-3.00 and the counter offer coming in at $3.03 which was accepted the next day.

 

If a shareholder is going to raise a fuss, it should be in the next few weeks. Seems like an easy ask for a meaningful bump.

 

Exactly what I was looking at. That was comical. And I would guess I Squared being savvy wanted to hold the price there so said they wanted to retrade lower — the proxy then try’s to indicate mgmt “heroically” held firm at the $3.03. (My paraphrased interpretation).

[SafetyinNumbers]

It was pretty easy to tell there wasn’t a real negotiation with the range provided by I-Squared between $2.75-3.00 and the counter offer coming in at $3.03 which was accepted the next day.

 

If a shareholder is going to raise a fuss, it should be in the next few weeks. Seems like an easy ask for a meaningful bump.

 

Exactly what I was looking at. That was comical. And I would guess I Squared being savvy wanted to hold the price there so said they wanted to retrade lower — the proxy then try’s to indicate mgmt “heroically” held firm at the $3.03. (My paraphrased interpretation).

 

I like to take the optimistic view that the BOD got us to the party and it’s up to minority shareholders to dance. Ideally one or two large shareholders will write a letter suggesting the price is too low. I doubt, ISquared would walk away for another $45m. If the margin is that tight, why are they even bothering?