Shares of TransAlta (NYSE: TAC) soared 58% during the first half of 2019, according to data provided by S&P Global Market Intelligence. The Canadian utility's stock rallied after activist investors joined together to push the company to make changes. The company did just that by signing a creative deal with renewable energy giant Brookfield Renewable Partners (NYSE: BEP).
Shares of TransAlta took off in March after two activist investors joined forces to press the company to make changes. The investing partnership bought enough shares to control a 10% stake in the company. The group -- which included Bluescape Energy Partners, led by the well-respected John Wilder -- wanted TransAlta to optimize its assets, improve its capital allocation, and broaden its strategic initiatives to unleash the full value of its assets.
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TransAlta responded to their demands by securing an investment of 750 million Canadian dollars ($573 million) from Brookfield Renewable Partners. The company will use those funds to advance its coal-to-gas strategy, buy back shares, and invest in renewables so that it can transition to 100% clean energy by 2025. In exchange, Brookfield will eventually hold a stake in TransAlta's hydroelectric portfolio. In addition to the direct cash investment, Brookfield also agreed to increase its direct ownership in TransAlta from 4.9% of its outstanding shares up to 9% over the next two years by purchasing stock on the open market.
While the activist investors initially fought against the Brookfield deal -- including by suing TransAlta -- they eventually dissolved the partnership. That enabled Brookfield to close the first phase of its investment in TransAlta in May, for CA$350 million ($267 million). The companies expect to close the second part of the investment next October.
TransAlta is working to transition its operations to 100% clean energy by 2025. The Brookfield investment is an important piece of that process, since it will give the company the funds to complete several projects that will enable it to move away from coal and toward natural gas and renewables. While this pivot has the potential to create more value for investors in the coming years, those seeking to invest in renewables might want to consider buying Brookfield Renewable Partners instead, since it has a long history of generating market-beating gains.
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