Brookfield has the right to nominate two directors for election to the TransAlta board at each annual meeting of shareholders as long as it owns the Exchangeable Securities. In addition, Brookfield agreed ments with customary exceptions. Brookfield also covenanted to increase its equity ownership in TransAlta to 9% in open market purchases over two years, provided that it is not obliged to purchase common shares at a price of more than $10 per share. Brookfield also received a one-time top-up option that allows it to increase its equity ownership in the entity holding the hydro assets up to 49% in certain circumstances, so long as Brookfield holds at least 8.5% of TransAlta’s common shares and the 20- day VWAP of TransAlta’s common shares is not less than specified fixed thresholds. TransAlta has the right after December 31, 2028, to redeem for cash all or a portion of the Exchangeable Securities, provided that all such securities are redeemed within 36 months of the first optional redemption.
The transaction represents a novel use of exchangeable securities to provide for a right of exchange into assets of the issuer.
Negotiations were complicated by the emergence of a significant shareholder, Mangrove Partners, which later partnered with Bluescape Energy Partners and which together held 10.1% of TransAlta’s common shares. Mangrove and Bluescape sought to engage with TransAlta to obtain board seats and governance and operational changes. Mangrove and Bluescape subsequently filed a joint Schedule 13D and submitted a notice of intention under TransAlta’s advance notice bylaw to nominate five directors for election at the upcoming shareholders’ meeting. In anticipation of a potential proxy contest at the shareholders’ meeting and to avoid binding a future reconstituted board to a transaction, TransAlta negotiated a right to enable a new board to revisit the Brookfield transaction (Governance Out). Under this novel Governance Out, if two directors not recommended by the board were elected at the 2019 meeting, TransAlta would have the right for 30 days to terminate the Brookfield transaction. Ultimately, Mangrove and Bluescape did not run a proxy contest; instead, Mangrove brought a “public interest” proceeding against TransAlta in opposition to the Brookfield transaction, before the Ontario Securities Commission and Alberta Securities Commission, which was unsuccessful.