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A possible $790-million dollar buyout for Canadian water heater giant EnerCare Inc. by its largest shareholder isn’t good enough, the company says.

A possible $790-million dollar buyout for Canadian water heater giant EnerCare Inc. by its largest shareholder isn't good enough, the company says.

Augustus Advisors LLC, the investment manager controlling a nearly 12-per-cent stake of the company, is leading an effort to acquire EnerCare's business – a portfolio made up of 1.1 million water heaters and other devices installed in Ontario homes and rented to owners. Subsidiary EnerCare Connections Inc. also has metering contracts that measure electricity and water used in condos and apartments in Ontario, Alberta and other provinces.

EnerCare thinks Augustus has undervalued the business, and said the indicated price wasn't enough to prompt further discussion.

The interest in a leveraged buyout of EnerCare is backed by TPG Special Situations Partners LLC (TSSP), a unit of a private investment firm that is affiliated with Augustus. But before making a formal offer, Augustus wants to be granted access to non-public information for due diligence and financing purposes.

Also involved is Octavian Special Master Fund, L.P., the actual owner of the shares that Augustus is managing. On behalf of these parties, Augustus says it told EnerCare of its intention to buy the business about a year ago, but talks with management stalled.

"To date, disappointingly, the company's board has not been receptive to pursuing a transaction with TSSP," said Augustus in a release.

EnerCare said in a statement that it is always open to "considering value maximizing opportunities." The company declined to comment on how Augustus might improve its offer.

EnerCare, once known as the Consumers' Waterheater Income Fund, has already been through a small proxy fight with Octavian a couple of years ago. The activist investor called for a shareholder vote to expand the board and elect four of its own nominees. It also wanted to talk about the company's strategy with EnerCare's management, but the dispute fizzled after proxy advisory firms sided with management. Octavian later gave up management of the shares to Augustus.

But now Augustus says EnerCare would be able to generate more value if the company was taken private, and said it would be willing to pay between $13.50 and $15 per share. That would value the company as high as $877.5-million, based on the more than 58 million outstanding shares.

Augustus's plans for saving money at a privately-owned EnerCare would include cutting out spending on investor relations, reinvesting money being used to pay dividends and a greater emphasis on adding new customers in business lines that don't immediately show returns on investments.

Analysts have mixed opinions on what happens next.

"At this time, we do not necessarily believe a deal will be consummated with TSSP given the Board's current stance and EnerCare's prior history of fighting takeouts," said Damir Gunja, analyst with TD Securities in a note to clients. He said the stock should still appeal to investors for its dividend and assets, and a deal could be possible at a higher price.

RBC Dominion Securities analyst Nelson Ng is more optimistic because of Octavian's change of approach and financial backing. "The outcome could be different this time," he wrote.

The second attempt to gain control may indeed be the charm for an EnerCare acquisition, as Mr. Ng suggests. But he cautions shareholders that the negotiations "may be long and drawn out."

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