Reasons to Support
- The US$3.03 per Common Share consideration exceeded the price that the Common Shares have traded in the prior 52-week and five-year periods and represented a 19% premium to the 52-week high and a 48% premium to the 30-day volume weighted average price immediately preceding the announcement of the transaction on January 14, 2021;
- The C$22.00 per Preferred Share consideration (i) exceeded the price that each series of Preferred Shares had traded in the previous 52-week and eight-year periods, ii) represented a 40% premium to the average repurchase price of the Preferred Shares repurchased by APPEL between 2017 and 2020 under APPEL’s normal course issuer bids and (iii) represented a premium of 19.5% to the average 52-week high for each series of Preferred Shares immediately preceding the announcement of the transaction on January 14, 2021;
- The conversion of the Company Debentures into Common Shares would be effected in accordance with the terms of the Company Debenture Indenture as amended in accordance with the Company Debenture Transaction; and
- The consideration equal to 106.071% of the principal amount of the MTNs outstanding as of the closing of the Arrangement, plus the payment of accrued and unpaid interest on the MTNs up to, but excluding, the closing date of the Arrangement, as well as an additional consent fee, conditional upon the closing of the Arrangement, equal to 0.25% of the principal amount of MTNs held by holders of MTN Noteholders who deliver a written consent to the amendments to the MTN Indenture required to give effect the MTN Transaction, represented a significant premium to the par value of the MTNs.
Compelling Value Relative to Alternatives
The Special Committee’s belief that it was unlikely that the trading price of the Common Shares or Preferred Shares would, in the near to medium term, yield greater value to Common Shareholders or Preferred Shareholders, as applicable, compared to the immediate and certain consideration to be received by Common Shareholders and Preferred Shareholders, as applicable, if the Arrangement is completed.
Prospects of Future Trading Price
The Special Committee’s belief that in order for the trading price of the Common Shares to exceed the US$3.03 per Common Share consideration to be received by the Common Shareholders in the near to medium term, power prices would need to significantly recover from current levels, which belief was formed following a review of a discounted cash flow analysis provided by the Company’s senior management using current energy prices, which implied a lower per Common Share price than the US$3.03 per Common Share consideration to be received by the Common Shareholders.
Highest Possible Price and Best Possible Terms
The Special Committee’s belief that the consideration negotiated with
I Squared Capital represented the highest price I Squared Capital was willing to pay, and that the terms of the Arrangement Agreement were the most favorable that I Squared Capital would be willing to agree to, which belief was based on, among other things, the extensive negotiations with
I Squared Capital and its legal counsel, the increase in price obtained from I Squared Capital for the Common Shares, Preferred Shares and MTNs, and the final terms of the Arrangement Agreement, all as detailed above under the section entitled “Background to the Arrangement”.
Higher Price than Previous Proposals
The US$3.03 per Common Share to be received by Common Shareholders is greater than any of the final non-binding indicative proposals received in at least the past five years from potential acquirers of Atlantic Power, as described above under the section entitled “Background to the Arrangement”.
Low Likelihood of Another Proposal
The Special Committee’s belief that there was not a significant likelihood that another potential buyer would be interested in acquiring 100% of Atlantic Power at a price in excess of US$3.03 per Common Share, based on the Special Committee’s knowledge and experience, including the fact that no potential acquirer had made any non-binding proposals in excess of such amount in recent years; and senior management’s on-going and active dialogue with industry participants and investors.
The consideration to be received by Common Shareholders and Preferred Shareholders pursuant to the transactions contemplated by the Arrangement Agreement is payable entirely in cash and provides Common Shareholders and Preferred Shareholders with immediate liquidity and certain value for their investment, and removes the risks and volatility associated with owning securities of Atlantic Power as an independent, publicly-traded company.
Risks of Remaining a Public Company
The near-term, medium-term and long-term risks associated with execution of Atlantic Power’s strategic plan as an independent, publicly-traded company, including:
- Significantly depressed power prices, both with respect to capacity and energy, due to decreased rates of demand growth and continuing growth of supply, particularly from renewable energy sources, which have resulted in a highly challenging environment with respect to re-contracting power purchase agreements (“PPAs”) with respect to all of Atlantic Power’s power generating projects, including its hydro projects, which the Board believes is unlikely to improve in the near term;
- Atlantic Power’s status as a micro-cap power generating company and Atlantic Power’s declining EBITDA profile, with PPAs for nine of Atlantic Power’s power generating projects representing 57% of Atlantic Power’s net megawatts of generating capacity and 59% of Atlantic Power’s 2020 Project Adjusted EBITDA expiring through 2025;
- Industry conditions and competition increasing the likelihood that Atlantic Power will not be able to secure new PPAs on acceptable terms or timing, if at all, or only on terms with significantly reduced pricing;
- That if Atlantic Power fails to negotiate a new PPA for a project, the relevant project may be required sell into the electricity wholesale market, in which case the prices for electricity will depend on market conditions at the time, which may not be favorable;
- That Atlantic Power may not have sufficient cash to finance acquisitions or other growth opportunities given increased competition in the North American power generating industry for external investment opportunities and that a significant portion of Atlantic Power’s cash flow is used to service its debt obligations;
- Increased competition and consolidation in the power generating industry and the fact that Atlantic Power faces significant competition from companies with greater size and resources; and
- Despite improvements in business fundamentals at Atlantic Power since 2014, including the reduction of its debt obligations by nearly $1.2 billion, restructuring of its debt maturities resulting in a reduction of cash interest payments of more than 70%, the sales and acquisitions of power generating assets at attractive process and the reduction of corporate overhead expenses by nearly 50%, the market prices of Atlantic Power’s publicly-traded securities have remained depressed since 2014.
Risks to the Preferred Shareholders of not Being Acquired in the Arrangement
The Special Committee’s belief that, as compared to a transaction in which only the Common Shares were acquired by a third party, which would result in the Preferred Shares remaining outstanding and being subject to risks currently faced by the Company and those associated with how the acquirer of the Common Shares may operate the business post-acquisition, including the potential for the acquirer to take a more aggressive approach to liability management than Atlantic Power’s approach since 2014, the proposed transaction was a better outcome for the Preferred Shareholders.
Likelihood of Consummation of the Arrangement
The Special Committee’s belief that the Arrangement Agreement offered reasonable assurances as to the likelihood of the consummation of the transactions contemplated thereby, based on:
- The fact that I Squared Capital has experience in and a successful history of consummating transactions in the U.S. and other jurisdictions;
- The fact that the Arrangement Agreement is not subject to a financing condition;
- The fact that Purchasers have committed equity financing for the Arrangement, and that Atlantic Power is entitled to receive the Reverse Termination Fee if the Arrangement Agreement is terminated under certain circumstances (see the section entitled “The Arrangement Agreement — Reverse Termination Fee” beginning on page 109); and
- The likelihood of receiving the Required Consents and Required Regulatory Approvals within the timeframe set out in the Arrangement Agreement, including by the Outside Date, as it may be extended.
The respective opinions of Goldman Sachs and Blair Franklin to the effect that, as of the date of their respective opinions and based upon and subject to the factors and assumptions set forth therein, (i) the US$3.03 in cash per Common Share to be paid to the holders (other than I Squared Capital and its affiliates) of Common Shares pursuant to the Arrangement Agreement was fair from a financial point of view to such holders, in the case of the opinion delivered by Goldman Sachs, and (ii) that, with respect to the consideration to be paid pursuant to the Arrangement and the Company Debenture Transaction (as applicable), (a) the Common Share Consideration is fair, from a financial point of view, to the Common Shareholders; (b) the Preferred Share Consideration is fair, from a financial point of view, to the Preferred Shareholders; and (c) the Company Debenture Consideration is fair, from a financial point of view, to the Company Debentureholders, in the case of the opinion delivered by Blair Franklin. Such respective opinions are more fully described in the section entitled “The Arrangement — Opinions of Financial Advisors” beginning on page 42.
Support of Substantial Holder
A fund manager representing approximately 19% of the outstanding principal amount of Company Debentures and 66% of the outstanding principal amount of MTNs has agreed to vote in favor of or otherwise consent to the amendments to the trust indentures governing those securities.