CDPQ Acquires Innergex Renewable Energy For $C10 Billion
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.
Stéphane Rolland of The Canadian Press also reports Quebec pension fund manager to buy Innergex Renewable Energy in deal valued at $10 billion:
Quebec pension fund manager CDPQ has signed a $10-billion deal to buy Innergex Renewable Energy Inc. in a bid to leave the “short-term” view of stock market investors behind.
Under the agreement, the Caisse de dépôt et placement du Québec will pay $13.75 per share in cash, amounting to a 58 per cent premium on Monday’s closing price.
However, the price is less than half the company’s all-time high of over $32 per share in 2021.
Innergex’s main shareholder, Hydro-Québec, which approved the transaction, would also sell its stock at a loss — for $214 million less than the provincial power utility paid for its 19.9 per cent stake.
The Caisse de dépôt et placement said Tuesday it will offer $25 per preferred share, plus accrued and unpaid dividends.
The deal values the company at $10 billion, including debt, and requires a green light from shareholders and regulators.
The transaction comes at a time when the renewable energy sector has lost popularity in the wake of a backlash against environmental considerations as a focal point for investors in the U.S.
“(The Caisse) has a long-term perspective, whereas the markets unfortunately rely on the short term,” said Innergex CEO Michel Letellier in an interview.
He said renewable energy projects take years to develop, and that investors tend to value short-term profits and place less emphasis on longer-term potential.
“Stock market valuation is disconnected from the tangible value of assets,” he said in French.
Letellier insisted the outlook is good for Innergex, even if U.S. President Donald Trump inaugurates a tough patch for wind power.
“The U.S. market may be on pause, but, inevitably, we’re heading for an increase in electricity consumption in the U.S. and, eventually in a change of technology, from coal to cleaner generation.”
The Longueuil, Que.-based company, which runs hydroelectric facilities, wind farms, solar farms and energy storage sites, has operations in Canada, the United States, France and Chile.
Letellier said the market outlook in Canada is “very favourable,” reiterating points he made at last week’s quarterly earnings call.
CDPQ, currently Innergex’s second-largest shareholder, has been a partner of the company for two decades.
Emmanuel Jaclot, head of infrastructure at the Caisse, considers Innergex a “defensive” investment that would help shield it against inflation and economic cycles.
“It can generate revenues that are very resilient, very robust, very stable, many of which are indexed to inflation. That’s something that’s interesting for us,” he said.
The transaction is expected to close by the end of the year. National Bank Financial analyst Rupert Merer said shareholder and regulatory approval should not be hard to obtain.
He noted that Innergex has 65 days to come up with a better offer. “There is potential for upside to the acquisition price in the event of a third-party bid.”
Merer said the price offered by the Caisse should please shareholders, but pointed out that it sits below analysts' target price of up to $16.
“We are not surprised to see further consolidation by private equity, as we believe that renewable infrastructure stocks continue to trade below fair-value,” he said.
The offer shows that the gap between market values and those granted by private investors “is simply too wide,” comments Brent Stadler of Desjardins Capital Markets.
Brent Stadler of Desjardins Capital Markets agreed the offer price better reflects the fair value of Innergex’s portfolio of assets, showing that the gap between market values and what the private sector will pay is “simply too wide.”
However, he said he believes a competing offer is unlikely.
Mathieu Dion and Brian Eckhouse of Bloomberg also report that Innergex soars after $7 billion takeover from Quebec pension:
Innergex Renewable Energy Inc. surged after pension manager Caisse de Depot et Placement du Quebec agreed to buy the Canada-based power company in an all-cash deal that values it at about C$10 billion ($7 billion) including debt.
Innergex investors will receive C$13.75 per share, a 58% premium to Monday’s close, the companies said Tuesday in a statement. At that price, the company’s equity is worth about C$2.8 billion. Innergex shares rose as much as 55% on Tuesday.
Quebec-based Innergex operates hydroelectric facilities, wind farms, solar farms and energy storage facilities in Canada, the US, France and Chile. The firm has interests in 90 facilities with an aggregate installed capacity of more than 3,700 megawatts, and 17 projects under development.
Even as some generalist investors sour on renewables, pension funds and insurers with long-dated liabilities remain interested in safe, contracted returns that operating wind and solar farms offer.
CDPQ’s head of infrastructure, Emmanuel Jaclot, said in an interview that Innergex holds medium-term contracts of 14 years. “Many are indexed to inflation,” he said. “So this is a cash flow base that will be stable over time.”
The pension fund will seek to syndicate as much as 20% of its capital investment with other shareholders.
Investments in Renewables
Quebec’s government-owned power utility, Hydro-Quebec, owns about 20% of Innergex and supports the transaction, despite losing near C$80 million on its investments made since 2020, according to data compiled by Bloomberg. CDPQ is already the second-largest holder. The buyout is expected to close in the fourth quarter.
“Although, the transaction is not yet finalized, there should be an opportunity for another bidder to approach Innergex over a 65-day go-shop period,” Rupert Merer, a National Bank of Canada analyst, said in a note to clients. “The transaction comes just shy of our C$16/share price target.”
CDPQ has a history of investments in renewable energy projects around the world. It’s one of biggest investors, along with Blackstone Inc., in the US giant Invenergy LLC with a 44% stake as of the end of 2023.
The pension plan is also the largest shareholder in Innergex rival Boralex Inc., according to data compiled by Bloomberg. Boralex shares soared as much as 8.4% in trading Tuesday. The company is “an independent company with an independent board,” said Jaclot. “We will continue to support them, and there’s room for lots of players.”
The deal comes at a moment where Hydro-Quebec is looking to invest close to C$200 billion to build new power generation capacity and improve transmission reliability by 2035.
“This investment perfectly illustrates our constructive capital and dual mandate in action: while we strive for optimal returns, we are committed to supporting essential businesses headquartered in Québec, such as Innergex,” Jaclot said.
CDPQ, which had C$452 billion of net assets under management as of June 30, will report its annual results Wednesday.
Earlier today, CDPQ issued a press release stating Innergex enters into definitive agreement to be acquired by CDPQ for $13.75 per share:
All amounts are in Canadian dollars, unless otherwise indicated.
Innergex Renewable Energy Inc. (TSX: INE) (“Innergex” or the “Corporation”) and CDPQ announced today they have entered into a definitive agreement dated as of February 24, 2025 (the “Arrangement Agreement”), pursuant to which CDPQ will acquire all of the issued and outstanding common shares of Innergex (the “Common Shares”) (other than those held by CDPQ and certain members of senior management rolling over (the “Rollover Shareholders”)) for a price of $13.75 per share in cash. Pursuant to the Arrangement Agreement, CDPQ will also acquire all of the issued and outstanding preferred shares Series A and C of Innergex (the “Preferred Shares”) for $25.00 per share in cash (plus all accrued and unpaid dividends and, in the case of the Series A preferred shares, an amount in cash per Series A preferred share equal to the dividends that would have been payable in respect of such share until January 15, 2026, which is the next available redemption date) (the “Transaction”).
The Transaction is subject to approval by Innergex’s common shareholders and other customary closing conditions (including regulatory approvals).
"We are proud to support Innergex as it embarks on this new chapter, guided by a long-term vision, access to capital, and readiness to seize growth opportunities. This investment perfectly illustrates our constructive capital and dual mandate in action: while we strive for optimal returns, we are committed to supporting essential businesses headquartered in Québec, such as Innergex, which plays a key role in the energy transition and autonomy", said Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure at CDPQ. "Innergex has been a leader in renewable energy across North America, with strong development capabilities and a long history of collaboration and partnership with Indigenous communities."
From now until the closing of the Transaction, CDPQ will seek to syndicate up to 20% of its invested capital to bring in like-minded investors who share its vision for the next chapter of Innergex's growth. The Transaction is not conditional upon such syndication.
“Today’s announcement represents a pivotal moment for our company” said Monique Mercier, Chair of the Special Committee and of the Board of Innergex. “After extensive work and careful deliberation, the Special Committee and the Board of Directors have unanimously concluded that the Transaction is in the best interests of Innergex and fair to its shareholders. We are pleased to be announcing a transaction which not only provides our shareholders with immediate liquidity at an attractive premium, but also positions Innergex for long-term success under the private ownership of CDPQ, an important Québec institution with a strong balance sheet and desire to continue developing renewable energy and maintaining deep relationships with the various communities and other stakeholders with which Innergex does business.”
"As we transition from being a publicly traded company to a privately held entity, this change marks an exciting new chapter in our journey," said Michel Letellier, President and Chief Executive Officer of Innergex. "CDPQ shares our commitment to sustainability, growth as well as long-term value, hence together, we will be able to achieve even greater success. This move allows us to leverage their resources and expertise, while continuing to operate from our Longueuil headquarters, which will remain central to our global operations. This is great news for everyone involved, as it provides the stability and flexibility to pursue our goals without the distractions of market volatility. Our core mission to build a better world with renewable energy remains unchanged, including our shared prosperity approach with Indigenous and local communities. The strength of our team and values will continue to drive us forward. We are excited for the future as we continue to grow and innovate."
Transaction Highlights
- Attractive premium for common shareholders: Consideration of $13.75 per issued and outstanding Common Share, payable entirely in cash, representing a premium of approximately 58% to the closing price of the Common Shares on the Toronto Stock Exchange (“TSX”) on February 24, 2025 of $8.71 per Common Share and approximately 80% to the 30-day volume weighted average share price on the TSX for the period ending on February 24, 2025 of $7.66 per Common Share;
- Premium for preferred shareholders: Holders of preferred shares will receive repayment in full of their subscription price of $25.00 per share, representing a premium to the 30-day volume weighted average share price on the TSX for the period ending on February 24, 2025 of approximately 24% in the case of Series C preferred shares and 58% in the case of Series A preferred shares, in addition to the payment of accrued and unpaid dividends (running until January 15, 2026 in the case of Series A preferred shares to take into account the fact that such shares are not redeemable prior to such date);
- Certainty of value and immediate liquidity: The shareholders of Innergex will receive their consideration entirely in cash, which provides certainty of value and immediate liquidity;
- Unanimous Innergex Board recommendation: The board of directors of Innergex (the “Board of Directors”) unanimously recommends that Innergex’s common shareholders (other than CDPQ and the Rollover Shareholders) and Series A preferred shareholders vote in favour of the Transaction;
- Long-term investor: CDPQ has a long-standing relationship with Innergex, with its first investments dating back to 1995. Over the years, CDPQ has made multiple investments and is now Innergex's second-largest shareholder after Hydro-Québec. This deep understanding of Innergex's potential and its strong development capabilities led CDPQ to believe that Innergex would be better suited under this new ownership, benefiting from access to capital to unlock its full potential, making this a strategic decision for the Corporation;
- Strategic alignment going forward: CDPQ is closely aligned with Innergex’s management in a shared vision for the future of Innergex and will leverage the expertise of Innergex’s existing management team led by two 20+-year tenure executives, Michel Letellier, President and Chief Executive Officer and Jean Trudel, Chief Financial Officer, to continue to support Innergex’s growth strategy and to build a global leader headquartered in Québec;
- Transaction has the support of Innergex’s largest shareholder and Innergex’s directors and executive officers: Hydro-Québec, Innergex’s largest shareholder with approximately 19.9% of the outstanding Common Shares, and each of the directors who are shareholders and certain executive officers of Innergex (collectively, the “Supporting Shareholders”) have entered into support and voting agreements pursuant to which they have all agreed to, among other things, vote all of the shares they own in favour of the Transaction. In addition, Innergex’s President and Chief Executive Officer and Chief Financial Officer have undertaken to roll a portion of their Common Shares and reinvest in the privatized Innergex an amount of not less than $15 million in the aggregate (on the basis of an amount per share equal to the per share consideration received by Innergex’s common shareholders under the Transaction), and other members of management and key employees will be invited to proceed similarly; and
- Value supported by several fairness opinions: BMO Capital Markets (“BMO”), CIBC Capital Markets (“CIBC”) and Greenhill & Co. Canada Ltd., a Mizuho affiliate (“Greenhill”) have all provided the Board of Directors and the Special Committee with verbal opinions stating that, as at February 24, 2025, subject to the assumptions, limitations and qualifications set out in their respective opinions, the consideration to be received by the common shareholders of Innergex (other than CDPQ and the Rollover Shareholders) pursuant to the Transaction is fair, from a financial point of view, to such shareholders. Greenhill also provided a fairness opinion to the Special Committee and at its direction to the Board of Directors stating that, as at February 24, 2025, subject to the assumptions, limitations and qualifications set out in such opinion, the consideration to be received by the Series A preferred shareholders pursuant to the Transaction is fair, from a financial point of view, to such shareholders.
Board of Directors’ Recommendations
The Transaction was the result of a comprehensive negotiation process with CDPQ that was undertaken with the supervision and involvement of a special committee comprised solely of independent directors, namely Monique Mercier, Marc-André Aubé and Richard Gagnon (the “Special Committee”), advised by independent and highly qualified legal and financial advisors. The Special Committee, after receiving the fairness opinions of BMO, CIBC and Greenhill, as well as legal and financial advice, and upon the consideration of a number of other factors, has unanimously recommended that the Board of Directors approve the Transaction and recommend to Innergex’s common shareholders (other than CDPQ and the Rollover Shareholders) and Series A preferred shareholders to vote in favour of the Transaction at the meeting of shareholders to be called by Innergex to approve the Transaction (the “Meeting”).
The Board of Directors has also evaluated the Transaction with Innergex’s management and its legal and financial advisors and after receiving the fairness opinions, the unanimous recommendation from the Special Committee and legal and financial advice, has unanimously (Mr. Jean-Hugues Lafleur, Mr. Patrick Loulou and Mr. Michel Letellier having recused themselves from the meeting) determined that the Transaction is in the best interests of Innergex and is fair to its shareholders (other than CDPQ and the Rollover Shareholders). The Board of Directors, after receiving the fairness opinions and upon the unanimous recommendation of the Special Committee, in consultation with its financial and legal advisors, and following the consideration of a number of factors, also recommends unanimously (Mr. Jean-Hugues Lafleur, Mr. Patrick Loulou and Mr. Michel Letellier having recused themselves from the meeting) that Innergex’s common shareholders (other than CDPQ and the Rollover Shareholders) and Series A preferred shareholders vote in favour of the Transaction at the Meeting.
Fairness Opinions
In connection with their review and consideration of the Transaction, the Board of Directors engaged CIBC and BMO as its financial advisors. The Special Committee retained Greenhill to provide independent financial advice and fairness opinions to the Special Committee, and, at the request of the Special Committee, to the Board of Directors. CIBC, BMO and Greenhill all provided a verbal opinion to the Board of Directors and the Special Committee that, as at February 24, 2025, subject to the assumptions, limitations and qualifications set out in their respective opinions, the consideration to be received by Innergex’s common shareholders (other than CDPQ and the Rollover Shareholders) pursuant to the Transaction is fair from a financial point of view to such shareholders. The Special Committee and the Board of Directors also received a verbal opinion from Greenhill that the consideration to be received by Innergex’s Series A preferred shareholders pursuant to the Transaction is fair from a financial point of view to such shareholders.
Each fairness opinion provided to the Special Committee and the Board of Directors will be included in the management information circular (the “Circular”) to be mailed to Innergex’s securityholders in connection with the Meeting and to be filed by Innergex under its profile on SEDAR+ at www.sedarplus.ca and to be made available on Innergex’s website at www.innergex.com.
There are more details which you can read here.
Alright, this was a pretty big take private deal in Canada and it won't be the last one.
I expect CDPQ to take Boralex private at one point but let's focus on this deal first.
Why did CDPQ take Innergex private?
For a lot of reasons. First and foremost is that it's an important renewable energy company in Quebec and to ensure its long-term success and growth, CDPQ rightly felt it's better to take it private than leave it as a publicly listed company struggling to convince shareholders it's worth a lot more.
Truth be told, renewable energy companies are out of favour ever since President Trump and his administration came to power but this will not last forever.
Still, no doubt in my mind that Innergex is better suited to be a private company right now where it can focus on its growth strategy knowing it has the resources and capital of CDPQ behind it.
From the first article above:
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.
These are capital intensive companies investing for long-term projects and higher rates also impacted them negatively.
Judging from Innnergex's shares, investors didn't appreciate the long-term value creation the company was offering:
Shares popped today but most shareholders including Hydro Quebec, the largest shareholder, lost money (only those that bought recently when it hit a 52-week low of $6.98 made great returns).
The price CDPQ offered was fair, in line with its long-term average share price and while some think it's worth $16 a share, I doubt any other fund will offer more for it.
Now, there are other reasons why this makes a great private investment for CDPQ's renewables portfolio and Emmanuel Jaclot, CDPQ's Head of Infrastructure, alluded to them.
He said it's a defensive company with strong cash flows that are indexed to inflation as the company has medium term contracts that go out 14 years.
That is a great inflation hedge for their long dated liabilities with good duration.
What else?
“This investment perfectly illustrates our constructive capital and dual mandate in action: while we strive for optimal returns, we are committed to supporting essential businesses headquartered in Québec, such as Innergex,” Jaclot said.
Indeed, and it also aligns with their sustainable investing goals so it's a win-win-win.
Again, this isn't a get rich quick investment, it's a smart long-term investment which bolsters CDPQ's renewables portfolio and they will nurture it over time.
And I wouldn't be surprised if CDPQ takes out Boralex at one point for the same reasons I cited above.
Below, President and CEO of Innergex Michel Letellier discusses CDPQ's acquisition of the energy producer on BNN Bloomberg.
Good interview, he explains how they are going back to their roots as CDPQ owned them a long time ago when they were private and he feels very good about this new relationship.
Tomorrow, CDPQ reports its 2024 results. Stay tuned, I will cover them.
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