This article was written by Claire Poole of The Deal
As was widely expected, Canadian pipeline giant TransCanada (TRP) announced after the markets closed on Thursday that it agreed to buy Columbia Pipeline Group (CPGX) for $13 billion, including $2.8 billion in assumed debt.
The price works out to $25.50 per share, an 11% premium over Columbia's closing price Wednesday of $23 per share and a 32% premium over the volume-weighted average price over the last 30 days.
Columbia shareholders and regulators have to approve the deal, which is expected to close in the second half of this year.
TransCanada said late last week that it was in discussions about a potential transaction with an unnamed third party after reports that it was looking to acquire Columbia for $10 billion. The Deal reported this past April that Columbia was a potentially a takeover target after its spinoff from natural gas utility NiSource (NI) last year.
TransCanada has been looking for ways to expand after the U.S. scuttled its plan to build the Keystone XL pipeline because of environmental concerns.
Houston-based Columbia operates a 15,000-mile network of interstate natural gas pipelines extending from New York to the Gulf of Mexico with a significant presence in Appalachia.
"The acquisition represents a rare opportunity to invest in an extensive, competitively-positioned, growing network of regulated natural gas pipeline and storage assets in the Marcellus and Utica shale gas regions," TransCanada CEO and president Russ Girling said in a statement.
Girling added that the assets complement TransCanada's North American footprint, which together will create a 57,000-mile natural gas pipeline system connecting the most prolific supply basins to premium markets across the continent. "At the same time, we will be well positioned to transport North America's abundant natural gas supply to liquefied natural gas terminals for export to international markets," he said.
Columbia owns one of the largest interstate natural gas pipeline systems in the U.S. providing transportation, storage and related services to customers in the U.S. Northeast, Midwest, Mid-Atlantic and Gulf Coast regions. Its assets include Columbia Gas Transmission, which operates 11,300 miles of pipelines and 286 billion cubic feet of storage capacity in the Marcellus and Utica shale production areas, and Columbia Gulf Transmission, which operates a 3,300-mile pipeline system that extends from Appalachia to the Gulf Coast.
Columbia is working on $5.6 billion-worth of commercially secured projects that have to clear regulatory and permitting processes but are underpinned by long-term contracts and expected to generate growth in earnings as they enter service. More growth is expected from $1.7 billion worth of modernization initiatives being implemented through 2021.
Columbia chairman and CEO Robert Skaggs Jr. said the transaction delivers tremendous value to shareholders and places it within a top energy platform that can maximize the value of its strategic positioning and deep inventory of growth projects.
TransCanada expects the acquisition will boost earnings per share in the first full year of ownership after associated financing and asset sales. It added that its C$13.5 billion ($10.4 billion) portfolio of near-term investment opportunities, along with Columbia's $7.3 billion of commercially secured projects and $250 million of targeted annual cost, revenue and financing benefits, are expected to deliver significant shareholder value over the coming years.
"With a combined portfolio of $23 billion in near-term projects secured by cost of service regulation or long-term contracts, we are well positioned to generate significant growth in earnings into the next decade," Girling said. "These initiatives, underpinned by predictable and growing revenue streams, are expected to support and may augment our eight to 10 per cent expected annual dividend growth through 2020."
TransCanada said it expects to permanently finance the acquisition in part by selling its U.S. Northeast merchant power assets and a minority interest in its Mexican natural gas pipeline business. In the meantime, it has bridge term loan credit facilities in place for up to $10.3 billion with a syndicate of lenders and a C$4.2 billion subscription receipts offering.
"TransCanada intends to fund the acquisition and our significant future growth program in a manner that maintains our strong financial position," Girling added.
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