24 March 2016

TransCanada to take over Columbia Pipeline

On 17th March New York Stock Exchange (NYSE) -listed TransCanada announced its intention to acquire energy firm Columbia Pipeline Group (CPG). The buyer is planning to pay USD 26 for each share, representing an 11 per cent premium over the target’s close on 16th March, the last trading day prior to the deal being disclosed.

The deal, which involves the assumption of CPG’s debt, is valued at around USD 13,000 million. Having been approved by the boards of both companies, the acquisition is set to be TransCanada’s largest-ever, according to Zephyr, the M&A database published by Bureau van Dijk.

Based in Texas, CPG provides gas transportation and storage services. It claims to operate one of the largest underground natural storage systems in the US and owns about 15,000 miles of pipeline, extending from New York to the Gulf of Mexico. The company was spun off by gas distribution firm NiSource through an initial public offering in 2015 and has since been listed on the NYSE.

In addition to running gas pipelines and storage facilities, Alberta-based TransCanada is engaged in power generation and owns a diverse portfolio of energy facilities, including hydro, solar and wind plants. As of 31st December 2015, the company’s total assets stood at USD 64,483 million.

TransCanada’s massive resources come in handy when extra funding is needed for a costly deal. After securing a USD 10,300 million credit facility package for the acquisition, the company will be selling some of its power assets in the US Northeast to help finance the shortfall.

The announcement of the offer came amid a strong public reaction against pipeline constructions due to environmental concerns. Last November, the US government rejected TransCanada’s application to build the Keystone XL pipeline, which was intended to transport bitumen from the oil sands in West Canada to the Gulf Coast of the US.

President Obama rationalised the verdict by stating that the project was not in the interests of the country and would undermine efforts to fight climate change. TransCanada described the permit denial as “arbitrary and unjustified”. In response, the company filed a lawsuit against the government, asking for the decision to be reversed and at the same time seeking USD 15,000 million in damages to recover its investment in the project.

Up north, the Quebec government this month announced plans to seek an injunction against TransCanada’s proposed Energy East pipeline project, with the goal of forcing the company to comply with environmental laws in the province.

Amid the backlash, the recent shale glut has also caused US demand for imported gas to fall, according to Liam Denning of Bloomberg. The excess is also being exported to TransCanada’s home country, further threatening its business.

Additional revenue from the target’s US pipelines, which are benefiting from the shale boom, could conveniently give TransCanada a buffer against trade risks and allow for the expansion of its pipeline network without undergoing new constructions.

Acknowledging his intention, TransCanada’s chief executive Russ Girling said: “CPG’s interstate pipeline and midstream assets sit directly on top of the fastest growing areas of the Marcellus and Utica Shale regions. This provides us with a complementary asset base, a substantial growth pipeline network and a broad team that has a solid track record of executing on projects and delivering results”

© Zephyr