Drax Group PLC struck a deal to acquire Pinnacle Renewable Energy Inc. in an all-cash transaction valued at C$831 million, including the assumption of net debt and Pinnacle's noncontrolling interests in its joint ventures.
Under the deal, Pinnacle shareholders would receive C$11.30 per share in cash, which represents approximately 13% to the closing price and 15% to the 20-day volume-weighted average price of Pinnacle shares on the Toronto Stock Exchange on Feb. 5, according to a Feb. 8 news release.
Pinnacle, a producer of industrial wood pellets, operates nine production facilities in Western Canada and one in Alabama. It is also building an additional facility in Alabama with more in development. The company also owns a port terminal in Prince Rupert, British Columbia. Pinnacle holds long-term, take-or-pay contracts with utilities in the U.K., Europe and Asia that represent an average of 99% of its production capacity through 2026.
The transaction is subject to the approval of at least two-thirds of the votes cast by Pinnacle shareholders at a special meeting, which is expected to be held in early April.
Pinnacle's largest shareholder, ONCAP Investment Partners II LP, together with Pinnacle's directors and senior officers, who collectively own approximately 36% of the outstanding company shares, have agreed to vote all the shares owned or controlled by them in favor of the transaction, according to the release.
The board of Pinnacle unanimously determined that the transaction is in the best interests of the company and is recommending that shareholders vote in favor of the acquisition. Further, CIBC Capital Markets and Scotiabank each provided an opinion that the proposed consideration is fair to Pinnacle shareholders from a financial point of view.
In addition to shareholder approvals, the deal is subject to other closing conditions, including governmental and regulatory approvals as well as the approval of the Supreme Court of British Columbia. The companies expect to close the deal in the second or third quarter.
Under the agreement, Pinnacle also agreed to suspend the declaration of its dividends on its shares for the first quarter.
Pinnacle hired CIBC Capital Markets and Scotiabank as financial advisers, and Stikeman Elliott LLP and Kirkland & Ellis LLP as legal advisers.
RBC Capital Markets is acting as financial adviser to Drax. Osler Hoskin & Harcourt LLP and Slaughter and May are acting as legal advisers.
