POST- KXL DEAL ‘MAKES GOOD SENSE’
TRANSCANADA SAID TO BE TARGETING GAS OPERATOR
A deal f or Houston- based natural gas pipeline operator Columbia Pipeline Group Inc. would give TransCanada Corp. access to high-growth U.S. shale plays, analysts said Thursday.
TransCanada, the Calgarybased pipeline company whose Keystone XL oil pipeline project was rejected late last year, issued a statement confirming it was in talks with a “third party” about a “potential transaction.”
“While we are in discussions regarding a potential transaction with a third party, no agreement has been reached and there is no assurance that these discussions will continue or that any transaction will be agreed upon,” TransCanada said.
The company did not provide a name for that third party, but a report in The Wall Street Journal named Columbia Pipeline Group as the target in a deal that could be worth about US$12 billion.
“I think it makes good sense strategically, but everything has a price,” FirstEnergy Capital Corp. analyst Steven Paget said.
Paget said that TransCanada is well-positioned in highgrowth shale gas formations in northeastern Alberta and northwestern British Columbia with its existing gas pipeline network. Columbia’s gas pipeline system in Pennsylvania and the northeastern U.S. would give TransCanada exposure to another highgrowth shale gas formation called the Marcellus.
Paget added that Columbia Pipeline could use additional capital to grow its pipeline network, something TransCanada can provide.
Spun out of NiSource Inc. in an initial public offering in 2015, Columbia Pipeline operates a 24,000-kilometre natural gas pipeline network that analysts say would fit well with TransCanada’s existing gas pipelines.
Paget said that TransCanada is, more than anything else, a natural gas midstream company. Though it has oil pipelines and a power business, the company’s 67,300-kilometre natural gas pipeline network made the largest contribution to TransCanada’s earnings last year.
Columbia Pipeline’s New York- traded shares jumped as much as 15 per cent on the reports before settling back, ending that day at US$ 21.43, up 8.5 per cent or US$1.68.
Columbia Pipeline has a market capitalization of US$ 9.4 billion and carries US$ 3 billion in debt, meaning that a potential transaction could be valued above US$ 12 billion.
Columbia Pipeline spokesperson James Yardley s ai d his c ompany’s policy is not to comment on market rumours.
He also declined to comment on whether Columbia had gone through a strategic review recently, or whether the company had been considering a sale.
TransCanada spokesman James Millar also said his company would not comment on “rumours and speculation” but did comment on t he company’s overall approach to acquisitions.
“As we have said previously, TransCanada remains focused on opportunities that would be in line with our strategy and grow shareholder value,” Millar said.
RBC Capital Markets analyst Robert Kwan said in a research note that Columbia’s “assets are in a strategically attractive part of North America where TransCanada does not have a footprint.”
He also said those Columbia assets “are generally adjacent to some of TransCanada’s larger gas assets.”
On TransCanada’s most recent earnings call, chief operating officer Alex Pourbaix signalled that the company was weighing its options and cautiously looking at potential acquisition targets.
“For much of the past decade we just haven’t seen the values on asset acquisitions or corporate acquisitions,” Pourbaix said.
“We are going to look for transactions that are accretive that fit our strategy, but we do think we are in a pretty good opportunity phase right here from that perspective,” he said.
Last year, TransCanada purchased several power plants in Ontario and the United States, but grew its pipeline network internally rather than through corporate acquisitions.