US Activist Investor Urges TransCanada Break-up, Overhaul

A small New York-based activist hedge fund is urging Canada's No. 2 pipeline operator TransCanada Corp to overhaul its business, including breaking up the company to unlock higher share values.

Sandell Asset Management Corp, in an open letter sent to the TransCanada board on Monday, said the company is worth C$75 per share, about a third more than its Friday closing price of C$55.80.

TransCanada shares have rallied since the U.S. House passed a bill on its Keystone XL pipeline on Friday. The shares rose 2.29 percent to C$57.08 on Monday in Toronto.

The activist investor, which owns an 0.1 percent stake in the firm, wants TransCanada to revamp the way it uses its master limited partnership (MLP), TC Pipelines LP, and move more assets into the MLP to boost shareholder returns.

Sandell is also calling on TransCanada to split its pipeline and power businesses into separate companies, allowing each segment to attract a more specialized investor base.

TransCanada said the hedge fund's analysis was "flawed," adding its current strategy positioned it best to "deliver long-term value to investors."

In September, people close to the matter told Reuters the Calgary-based firm had emerged as a possible target for U.S. activist investors who viewed the C$39.5 billion pipeline operator as a break-up candidate.

Citigroup analyst Faisel Khan also laid out the case last June for a break-up, suggesting spinning off the company's power business and placing the remainder of its U.S. natural gas pipeline assets into a master limited partnership.

Last week, TransCanada offered to move its stake in Gas Transmission Northwest LLC to its MLP, and said it would "ultimately" move its holdings in four other pipeline systems into the partnership.

Sandell, which released its letter ahead of TransCanada's annual shareholder meeting on Wednesday, has previously targeted Spectra Energy Corp along with restaurant and food group Bob Evans Farms Inc and transportation firm FirstGroup Plc.

The activist investor holds 0.71 million TransCanada shares worth roughly C$37 million, according to Thomson Reuters data.

(Reporting by Julie Gordon in Vancouver and Scott Haggett in Calgary; Editing by Richard Chang)