AltaGas in merger talks with U.S. utility: report
As AltaGas Ltd. remains at the centre of swirling speculation about a proposed merger with a U.S. natural gas supplier, the Calgary-based utility appears to be pursuing a path of aggressive growth.
In recent weeks, the company secured regulatory approval to double the size of a natural gas plant in British Columbia and also sanctioned the first propane export terminal on Canada’s West Coast.
While AltaGas seeks power contracts in California, the company this week confirmed it’s also in talks with a third party over a proposed transaction south of the border.
Although the utility didn’t name the target, the Wall Street Journal reported AltaGas is in merger talks with WGL Holdings Inc., an energy utility that supplies natural gas to Washington, D.C., in a deal worth US$5 billion to $6 billion.
“There’s a growth trajectory, if they can execute,” David Noseworthy, an analyst at Macquarie Capital, said in an interview.
“Until AltaGas actually executes on some of these things, they have decelerating dividend growth. Don’t get me wrong, you want to be in a name like this as it churns from deceleration to acceleration, and there’s a lot of reason to think we might be getting to that point.”
AltaGas declined to comment on the proposed deal Friday, but said it is laying a path to growth. Among other work in B.C., the company is preparing for a $400-million to $500-million export terminal that would ship up to 1.2 million tonnes of propane a year to Asian markets, opening up premium prices for Western Canada’s abundant supplies of propane.
“It’s a busy time for AltaGas,” spokeswoman Sandra Semple said.
Noseworthy said in a note WGL’s utility business in the U.S. capital accounts for most of its assets, though the company also sells gas and power into the northeastern U.S. and runs pipelines. It’s pro- jecting $700 million in pipeline spending across the northeastern U.S. over the next five years.
There were reports in November that WGL was considering a sale to Spanish utility Iberdrola, suggesting AltaGas may face competition, “which is not surprising given the high activity levels of utility (mergers and acquisitions),” CIBC World Markets analysts said in a note.
The analysts said a merger would be in line with AltaGas’ strategy of acquiring U.S. assets. Having a wide geographic footprint “is generally beneficial to utilities as it can reduce risk (from regulatory change in any given jurisdiction).”
There may be other reasons for
Until AltaGas actually executes on some of these things, they have decelerating dividend growth.
looking south of the border.
“As the infrastructure space in Canada is weighted by increased regulation and environmental activism, companies are seeking alternate growth opportunities,” analysts at GMP FirstEnergy said in a note. “This trend has been evident with TransCanada and Enbridge already looking south of the Canadian border to purchase U.S. peers with existing infrastructure.”
Still, speculation around merger talks has already posed challenges to AltaGas’ stock, which fell five per cent, or $1.65, to $32 on Friday. Noseworthy said in a note the company would have to give up billions in new equity to finance the deal, a fear that has already been a drag on its share price. Many other hurdles remain. “We believe price, financing and legal and regulatory approvals are but a few areas in which this transaction could ultimately fail,” Noseworthy wrote to clients.