Calgary-based TransCanada Corp (>> TransCanada Corporation) is emerging as a possible target, with several U.S. activist hedge funds reviewing the nearly $38 billion pipeline operator as a break-up candidate, people close to the matter said.

Discussions about a potential campaign are still in the early stages, but some of TransCanada's largest shareholders have been contacted by hedge funds interested in shaking up one of North America's biggest pipeline companies, the people said.

These actions have also led to discussions by the TransCanada board surrounding the company's strategic direction, the people said, asking not to be named because the matter is not public.

TransCanada, citing a company policy not to comment on rumors, said only that it is committed to acting in the best interests of shareholders.

"The enhancement of shareholder value is discussed at every meeting of TransCanada's board of directors," spokesman Shawn Howard said, adding "TransCanada has a well-defined strategic plan in place to increase long-term shareholder value and we are focused on continuing to deliver on this plan successfully."

In June, Citigroup analyst Faisel Khan laid out the case for a break-up, saying that measures including spinning off TransCanada's power business and placement of the remainder of its U.S. natural gas assets into a master limited partnership (MLP).

That could boost TransCanada's share price to C$76, Khan said. The company's shares ended regular trading On Thursday up C$1.95, or 3.3 percent, at C$60.81 on the Toronto Stock Exchange.

That scenario triggered investor interest and several large U.S. hedge funds that pursue activist investing strategies, including Daniel Loeb's Third Point, have looked at the company, two people familiar with the matter said.

The people familiar with Loeb's New York based firm said he has amassed a position over the last few months. Third Point declined to comment.

It remains unclear which investor, if any, will ultimately lead the charge to shake up the company. Many activist hedge funds buy passive stakes and choose not to launch any campaign at all.

Canada has been both a productive and difficult place for U.S. hedge funds to practice their craft. With its corporate landscape often described as clubby, Canadian investors seldom want to be known as the agitators and prefer to let their U.S. rivals take the lead and pile on when they see success.

A campaign at TransCanada would follow on the heels of several U.S. activist campaigns in Canada in recent years, such as William Ackman's move on Canadian Pacific Railway (>> Canadian Pacific Railway Limited), Barry Rosenstein's battle with Agrium Inc (>> Agrium Inc.) and Carl Icahn's settlement with Talisman Energy (>> Talisman Energy Inc.).

UNLOCKING VALUE

Over the last year, at least a dozen developers in North America and Europe including NRG Energy Inc (>> NRG Energy Inc), NextEra Energy Inc (>> NextEra Energy Inc) and Abengoa SA (>> Abengoa SA) have considered or formed so-called yield vehicles that own and operate power plants.

Spinning off TransCanada's power assets or forming a "yieldco" could help unlock value for investors, analysts and bankers have said. They say that assets that may not fit in a "yieldco" could also be sold at favorable prices to power producers such as Calpine Corp (>> Calpine Corporation), Dynegy Inc (>> Dynegy Inc) and NRG.

Analysts have said TransCanada's diverse asset base has caused its midstream assets to underperform those of its U.S. and Canadian peers, including Kinder Morgan Inc (>> Kinder Morgan Inc) and Enbridge Inc (>> Enbridge Inc). Some investors have been critical of TransCanada's pace of dropping assets into an MLP it operates in North America.

The company has said it has a superior growth portfolio that will see it invest approximately $22 billion in a number of energy infrastructure projects throughout North America. The majority of these projects are under construction and are expected to be completed over the next three years.

The $5.4 billion Keystone XL pipeline is the company's most controversial project. Bitterly opposed by environmentalists, the 830,000 barrel-per-day line has awaited approval from the Obama administration for six years.

Another major project is its C$12 billion Energy East line, which could carry 1.1 million bpd 4,600 kilometers (2,850 miles) from Alberta to Saint John, New Brunswick, on the Atlantic coast.

(Reporting By Nadia Damouni in New York, Svea Herbst-Bayliss in Boston, Euan Rocha in Toronto with additional reporting by Scott Haggett in Calgary and Mike Stone in New York, Editing by Soyoung Kim and Steve Orlofsky)

By Nadia Damouni, Svea Herbst-Bayliss and Euan Rocha