* Unitholders O'Leary, EdgePoint seen as last hurdle
* No other unitholder expected to obstruct deal
* Special meeting likely before court ruling - analysts
By Bhaswati Mukhopadhyay
BANGALORE, Sept 15 (Reuters) - Canadian alternative power producer Boralex Inc's move to acquire Boralex Power Income Fund, a trust it manages, faces delays as two of the trust's unitholders raise objections, but the deal is still likely to go through.
The deal is one of many expected in the income trust sector this year as companies lose a long-favored tax status and switch strategic focus.
In February, Boralex's rival, Innergex Renewable Energy Inc offered to buy Innergex Power Income Fund citing improved tax efficiency.
Since Boralex made an offer in May valuing the trust at C$227 million, or C$5 per unit, unitholders O'Leary Funds Management LP and EdgePoint Wealth Management Inc have called the offer inadequate.
"At the end of the day, O'Leary wants the deal to go through, but at a price it wants. It wants to maximize returns for unitholders," said analyst Massimo Fiore of Versant Partners.
Late last month, Boralex added a cash option to its offer, but kept the value of its bid at C$5 a unit. O'Leary believes the trust is worth more than C$6 a unit given its hydropower assets.
"When you improve the cash component of an offer, typically more people support it," said Bill Cabel, analyst at Jacob Securities.
Boralex, which owns 23 percent of the trust, also wants trust unitholders to vote on a proposal to lower the threshold of tendered units required for the deal to go ahead -- to 66.66 percent, including its stake, from the existing 90 percent threshold excluding its holding.
O'Leary has sought a court ruling to prevent this move.
With about 65 percent of the units have already been tendered ahead of a deadline later on Wednesday, O'Leary and EdgePoint are likely, at best, only to delay the deal. "EdgePoint and O'Leary together own more than 10 percent of the trust, and that is the last obstacle for the deal," analyst Michael Goldberg of Stonecap Securities Inc said. The special meeting planned to vote on lowering the threshold will most likely be next month, before any court ruling, analysts said.
NO OTHER SUITORS LIKELY
Analysts say the synergies between Boralex and the trust make it unlikely that any other suitor might step in with a rival offer.
Boralex's main target in the deal is the trust's seven hydroelectric power stations -- five in Canada and two in the United States, all of which are backed by long-term contracts, which would reduce Boralex's exposure to U.S. spot power prices.
"We think Boralex is trading at a valuation discount to its peers because of its exposure to spot power prices," said Stonecap's Goldberg.
While the Boralex Power trust has taxable Canadian income, Boralex Inc has sizeable tax benefits in Canada from building renewable energy assets there. A deal would allow the core company to apply its tax shield to the trust's Canadian income.
"So, they will not be paying taxes in Canada for the next 10 years or so," said Goldberg. (Reporting by Bhaswati Mukhopadhyay in Bangalore, Editing by Ian Geoghegan)