TransAlta (TA) dropped over 10% after announcing its $1B acquisition of two peaker plants in Colorado, which builds on its growing gas footprint…

… and upgrades the overall portfolio, with the acquired assets fully contracted for the next 27 years. Investors didn’t like the financing package, with the company raising $350M at 10x EBITDA to buy at 12.5x EBITDA…

… which looks dilutive until you do the napkin math on FCF impact. Driven by a weak outlook for Alberta power prices, management is calling for $400M of FCF at the midpoint this year…

… and expects $45M of run-rate FCF from the deal, with potential upside from incentive payments. That’s an ~11% increase in cash flow, funded by a ~6% increase in share count - so ~5% accretive to FCF per share.

That math works all the way up to $735M of base FCF, meaning Alberta spot prices would need to hit ~$220/MWh before the deal becomes dilutive - given a $1/MWh increase drops another $2M to the bottom line…

… which is a scenario I don’t think anyone would mind, as the company would be printing cash. Interesting deal, I think the market might have this one wrong.