Market awaits competing bids for Canadian Hydro Developers; Patheon pushes for Lonza deal

By Cristal Cody

Tupelo, Miss., Aug. 28 - The market watched and waited Friday for Canadian Hydro Developers, Inc. to announce a competing bid that would best a C$654 million hostile offer from TransAlta Corp., but none was announced by the end of the business day.

An analyst told Prospect News the renewable energy company could be bluffing in its attempt to deflect TransAlta's bid.

Also on Friday, an analyst said that JLL Partners, Inc. is adamant about not selling shares of Patheon Inc. to Lonza Group AG, but the firm is unlikely to hold on to the company forever.

Meanwhile, Patheon's special committee of independent directors said Friday that JLL cannot dictate the company's future and said it continues to engage in discussions with Lonza.

Wall Street mostly fell on Friday, though technology stocks kept the Nasdaq Composite index up.

"After a strong opening, equity prices were unable to hold gains," Bill O'Grady, chief market strategist with Confluence Investment Management LLC, said Friday in a research note. "Equities have been choppy all week, failing to follow through to the upside on supportive economic data but rallying on little news. This market behavior is indicative of late summer."

The Dow Jones Industrial Average closed down 36.43 points, or 0.38%, at 9,544.20.

The Standard & Poor's 500 index fell 2.05 points, or 0.20%, to 1,028.93. The Nasdaq inched up 1.04 points, or 0.05%, to end at 2,028.77 on Friday.

Canadian Hydro seeks bids

TransAlta has extended its hostile tender offer at C$4.55 a share for Canadian Hydro to Sept. 11.

The Calgary, Alta.-based utility lost an effort on Tuesday to have the Alberta Securities Commission block Canadian Hydro's shareholders rights plan.

Canadian Hydro's shareholders rights plan remains in effect through Sept. 21.

The commission blocked the request in part because of the potential of other bidders for the company, Canadian Hydro said in a statement.

The Calgary, Alta.-based green energy company said it has held discussions with several parties, including a "leading international financial institution based in New York."

Canadian Hydro said earlier in August that its data room has been open since July 30 and a number of parties have signed confidentiality agreements.

"Today, we thought we were going to see a competing bid for Canadian Hydro," Matt Gowing, an analyst with Research Capital, said Friday in an interview. "Canadian Hydro management indicated at the start of the week that there was going to be a competing bid."

Canadian Hydro could be "bluffing" in its deal action in an effort to extract a higher bid from TransAlta, Gowing said.

Canadian Hydro representatives could not be immediately reached for comment.

On Thursday, Canadian Hydro said it continues to recommend shareholders reject TransAlta's offer, which is below the company's current trading prices.

TransAlta, which sells power in Canada, the United States and Australia, launched the hostile tender offer on July 22.

"With the stock trading higher, the market definitely is betting a competing bid comes in," Gowing said. "The market's not really that surprised by what TransAlta did. They're being patient and prudent and not increasing the bid unless they have to."

Shares of Canadian Hydro fell C$0.03, or 0.59%, to close at C$5.09.

TransAlta's stock closed down 21 cents, or 1.06%, at $19.61.

Patheon tug-of-war

Patheon's special committee of independent directors said Friday in a statement that the expiration of JLL's tender offer for its stock is long overdue.

"It has been clear for some time that JLL's $2.00-per-share offer would not succeed," Paul Currie, chairman of the special committee, said in the statement. "The special committee determined months ago that the bid was inadequate, opportunistic and coercive."

JLL owns 57.00% of Patheon's outstanding shares after letting its tender offer for the stock expire on Wednesday after nine months of extensions.

Patheon said it continues to explore Lonza's offer of about $450 million, or $3.55 a share, despite JLL's statements that no deal can be done without its permission.

Basel, Switzerland-based Lonza's proposal requires that holders of at least 67.00% of outstanding shares accept the offer.

Patheon's special committee said that it has received positive feedback from shareholders on the proposal.

"Although JLL is a significant shareholder of Patheon, it is not the only shareholder and has no right to dictate unilaterally the future course of Patheon," the special committee said.

Lonza, which makes research and development supplies for the pharmaceutical, health-care and life-science industries, has an exclusive negotiation period with Patheon through Sept. 30.

On Thursday, JLL said in a statement that it will not sell its majority stake in the Research Triangle Park, N.C.-based prescription drug and packaging manufacturer.

A market source said Friday that JLL means what it says.

"Based on JLL's comments to us, we believe that Lonza's offer is unlikely to be successful," the analyst said. "Although we continue to believe that Lonza has the ability to increase its proposal to an attractive level, JLL refuses to even consider entering into negotiations. JLL told us, in no uncertain terms, that it would not enter into talks with Lonza."

Still, the New York private equity investment firm is "unlikely to retain a 57.00% stake in Patheon indefinitely," the source said. "However, as JLL has no predetermined timeframe for exiting investments, we would not rule out JLL holding the shares for two to three years."

Shares of Patheon lost C$0.03, or 0.99%, to close at C$3.00 on Friday.

Lonza's stock rose 0.78% to CHF 103.90.

Mentioned in this article:

Canadian Hydro Developers, Inc. Toronto: KHD

Lonza Group AG Swiss: LONN

Patheon Inc. Toronto: PTI

TransAlta Corp. NYSE: TAC

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