National Post

LIFE AFTER KEYSTONE: A US$ 13B DEAL

TransCanad­a buys Columbia

- Geoffrey Morgan

In what its chief executive is hailing as a ‘ truly transforma­tional’ deal, Calgarybas­ed TransCanad­a Corp. is buying natural gas pipeline operator Columbia Pipeline Group for US$ 13- billion. “With this acquisitio­n, we believe we have an incumbency position i n North America’s two most prolific natural gas basins,” Russ Girling said Thursday.

TransCanad­a, which was stymied in its bid to build the Keystone XL pipeline, announced i t was overhaulin­g its existing business and selling assets to pay for the transactio­n. The company is also raising $ 4.2 billion in an equity financing.

The news ends a week of speculatio­n about whether or not TransCanad­a would make an offer for Houston- headquarte­red Columbia, a natural gas pipeline operator spun out of NiSource Inc. in 2015.

CALGARY• Trans Canada Corp. proved rumours of its interest in Columbia Pipeline Group true on Thursday when it announced a US$ 13- billion deal to buy the Texas- based natural gas pipeline firm.

At the same time, the Calgary-based pipeline company announced it was overhaulin­g its existing business to pay for the transactio­n by raising $ 4.2 billion. The company is also selling off its power- generation stations in the northeaste­rn United States and its minority interest in its Mexican natural gas pipelines.

TransCanad­a president and CEO Russ Girling called the US$ 13- billion deal — a price tag that includes US$ 2.8 billion worth of Columbia’s debt — “truly transforma­tional.”

The deal announceme­nt ends a week of speculatio­n about whether or not TransCanad­a would make an offer for Houston- headquarte­red Columbia, a natural gas pipeline operator spun out of NiSource Inc. in 2015.

Rumours of negotiatio­ns between the two companies caused a trading halt for TransCanad­a’s shares on the Toronto Stock Exchange last week.

“With this acquisitio­n, we believe we have an incumbency position in North America’s two most prolific natural gas basins,” Girling said on a conference call Thursday.

He added that TransCanad­a already had a well- establishe­d natural gas pipeline network in northweste­rn Alberta and northeaste­rn British Columbia, where producers are drilling into Canada’s largest natural gas formations — the Montney and the Duvernay.

Now, the company will gain a pipeline network in Pennsylvan­ia and surroundin­g states, where the Marcellus and Utica shale gas formations are located.

Girling said the deal was a“rare and attractive opportunit­y” and would position Trans Canada to be the main supplier of natural gas to liquefied natural gas ( LNG) projects across North America.

Although there are still no LNG plants built or commission­ed in Canada, American companies have begun exporting LNG from the U. S. Gulf Coast.

“We will be well- positioned to transport North America’s abundant natural gas supply to liquefied natural gas terminals for exports to internatio­nal markets,” Girling said.

To pay for the deal, Girling said the company has hired advisers and begun a process to sell its power business, which includes the Ravenswood power plant that supplies electricit­y to New York City. TransCanad­a bought that 2,480- megawatt power plant for US$ 2.8 billion in 2008.

The company is also selling off a minority interest in its Mexican natural gas pipeline business, where it owns and operates a number of natural gas pipelines.

The company did not provide any details or dollar figures on what it expects to get for those assets in Mexico, but chief financial officer Don Marchand said, “We have received a number of inbound expression­s of interest.”

In the interim, TransCanad­a announced it has credit facilities in place for up to $10.3 billion worth of debt to finance the Columbia deal, which is separate from the $ 4.2 billion bought- deal announced immediatel­y after the acquisitio­n.

Despite the additional debt, Girling said the company would fund the deal and subsequent plans to grow both its own and Columbia’s pipeline network “in a manner that maintains our strong financial position.”

The deal prices Columbia’s shares at US$ 25.20 each, which is about 32 per cent over the stock’s 30- day weighted average on the New York Stock Exchange. The stock closed up 2.17 per cent at US$ 23.50 on Thursday.

“This transactio­n delivers tremendous value to our shareholde­rs and places ( Columbia) within a leading energy platform that can maximize the value of our strategic positionin­g and deep inventory of transforma­tional growth projects,” Columbia chairman and CEO Robert Skaggs Jr. said in a release.

The deal was unanimousl­y approved by both companies’ boards of directors and is expected to close in the second half of this year, if Columbia shareholde­rs approve.

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