LIFE AFTER KEYSTONE: A US$ 13B DEAL
TransCanada buys Columbia
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.