Canadian pension fund giant Caisse de dépôt et placement du Québec has struck a deal to buy Innergex Renewable Energy Inc. INE-T, aiming to take one of the country’s clean energy leaders under its wing and propel its growth.
The Caisse will pay $13.75 per common share in cash, a premium of 58 per cent to the closing price Monday on the Toronto Stock Exchange, the two organizations said in a joint statement Tuesday. The offer values the equity of the Longueuil, Que.-based company at about $2.8-billion.
“It’s a renewable champion, and we intend to push this forward,” said Emmanuel Jaclot, executive vice-president and head of infrastructure at the Caisse. A long-term vision under private ownership, bolstered by better access to capital, will help the company seize growth opportunities, he said.
With the deal, the Caisse is adding to its roster of renewable energy investments and flexing its muscle under its dual mandate, which is to promote Quebec’s economic development while earning the best possible returns for shareholders. The pension fund thinks Innergex is worth more than its current value on public markets, Mr. Jaclot said.
The transaction continues a wider trend of renewable energy companies being taken private. Over the past year alone, Greece’s Terna Energy, France’s Neoen, and U.K.-based Atlantica Sustainable Infrastructure plc have all been targeted by new owners aiming to pursue delistings.
Innergex’s board is unanimously recommending the sale to the Caisse. Total enterprise value of the agreement, which includes debt on the Innergex balance sheet, is $10-billion.
Innergex owns and operates hydroelectric stations, wind farms, solar farms and energy storage sites in Canada, the United States, France and Chile. It currently has interests in 90 operating facilities with an aggregate net installed capacity of 3,707 megawatts and an interest in another 17 projects under development.
In December, three of its wind power projects, co-developed with Indigenous partners, were chosen in BC Hydro’s most recent request for proposals for new renewable energy generation. They include the Stewart Creek Wind Project in the province’s Peace Region, which is majority-owned by the West Moberly First Nations.
The big problem for renewable project producers is that they have to spend a lot of money now in order to generate cash flows six or seven years later, said Innergex chief executive officer Michel Letellier.
“The public market doesn’t like that dynamic,” Mr. Letellier said in an interview, adding that the recent wave of privatizations suggests many investors don’t appreciate the long-term value creation the industry is providing.
Having the Caisse as an owner provides the stability and flexibility Innergex needs to pursue its goals without the distractions of market volatility, Mr. Letellier said. He said there will be significant opportunities in the years to come in both the U.S. and Canada as provinces put out calls for green energy development.
U.S. President Donald Trump has called climate change a hoax and claimed that wind turbines cause cancer and kill whales, prompting some investors to pull back on renewables. He has also promoted fossil fuels and rolled back climate and environmental protections.
But the strength of renewable stocks during Mr. Trump’s first term suggests that investors should focus on the fundamental underpinnings of the sector, which could grow in the years ahead. Rhetoric coming out of the White House is one factor, but interest rates and other economic pressure points are also important because they dictate a company’s ability to fund projects.
“We believe this transaction highlights the true value of renewables assets, which in our view the public markets are mispricing currently,” Scotiabank analyst Robert Hope said in a research note.
Mr. Hope speculated that Boralex Inc., another Quebec-based green energy producer, in which the Caisse owns a stake of about 15 per cent, could be the next takeout candidate. Mr. Jaclot declined to comment on a possible transaction, saying only that private ownership is “probably the way to go” for renewable energy developers.
Hydro-Québec, the provincial utility and one of the world’s biggest hydropower producers, is Innergex’s biggest shareholder, with a roughly 20-per-cent stake. It has agreed to vote its shares in favour of the sale, in tandem with certain Innergex directors and executives.
Mr. Letellier and Innergex chief financial officer Jean Trudel are also rolling over a portion of their shares and reinvesting a minimum of $15-million in the privatized company, according to details of the transaction. Desjardins Capital Markets analyst Brent Stadler said he believes a competing offer for Innergex is unlikely to emerge and recommends investors tender their shares.
The Caisse has a relationship with Innergex stretching back 30 years and is currently its second-largest shareholder. The pension fund invested in the company before it went public in 2007 and has also provided financing for projects.
The pension fund manager has set a target to own $54-billion in low-carbon assets this year, including in renewable energy, real estate and transportation. Among its current investments are Verene Energia, a 695-kilometre power transmission network in Brazil, and Invenergy Renewables LLC, the largest private developer and operator of wind and solar projects in North America.