TransCanada to acquire Columbia Pipeline Group for $13 billion
TransCanada Corporation (TSX:TRP) (NYSE:TRP) (TransCanada) has entered into an agreement and plan of merger pursuant to which it will acquire Columbia Pipeline Group, Inc. (NYSE:CPGX or Columbia), a Houston, Texas-based company that operates an approximate 24,000-kilometre (km) (15,000-mile) network of interstate natural gas pipelines extending from New York to the Gulf of Mexico, with a significant presence in the Appalachia production basin, TransCanada said Thursday in a press release.
Under the terms of the all-cash deal, unanimously approved by the Boards of Directors of both companies, Columbia shareholders will receive US$25.50 per common share, an 11 per cent premium based on Columbia's closing stock price on the NYSE of US$23.00 as of March 16, 2016 and a 32 per cent premium to the volume weighted average price over the last 30 days. This represents an aggregate transaction value of approximately US$13 billion including the assumption of approximately US$2.8 billion of debt. The deal is subject to Columbia shareholder approval and certain regulatory approvals.
Columbia owns one of the largest interstate natural gas pipeline systems in the United States, providing transportation, storage and related services to a variety of customers in the U.S. Northeast, Midwest, Mid-Atlantic and Gulf Coast regions. Its assets include Columbia Gas Transmission, which operates approximately 18,000 km (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, an approximate 5,400-km (3,300-mile) pipeline system that extends from Appalachia to the Gulf Coast.
Columbia is currently advancing US$5.6 billion of commercially secured projects that are subject to normal course regulatory and permitting processes. They are underpinned by long-term contracts and expected to generate growth in earnings as they enter service. Under agreements with customers, additional growth is also anticipated from approximately US$1.7 billion of modernization initiatives to be implemented through 2021.
TransCanada expects the acquisition, net of associated financing and portfolio management, to be accretive to earnings per share in the first full year of ownership. Looking forward, TransCanada's $13.5 billion portfolio of near-term investment opportunities together with Columbia's $9.6 billion (US$7.3 billion) of commercially secured projects, and approximately US$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," said Girling. "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 expects portfolio management to play an important role in the permanent financing of the acquisition through the planned monetization of U.S. Northeast merchant power assets and a minority interest in its Mexican natural gas pipeline business. The proceeds from asset sales, along with new common equity proportionate to the size of this transformative transaction, are expected to comprise the required funding while maintaining the company's financial strength and flexibility. As an interim measure, TransCanada has bridge term loan credit facilities in place for up to US$10.3 billion with a syndicate of lenders. Future growth is expected to be funded in a manner consistent with the company's current financial profile.
The acquisition is expected to close in the second half of 2016 subject to receipt of Columbia shareholder approval, along with certain regulatory and government approvals, including compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the satisfaction of customary closing conditions. Upon closing, Columbia will become an indirect wholly-owned subsidiary of TransCanada and will cease to be a publicly held corporation.
Wells Fargo Securities, LLC acted as exclusive financial advisor to TransCanada. Mayer Brown LLP, Blake, Cassels & Graydon LLP and Osler, Hoskin & Harcourt LLP were legal advisors to TransCanada.
Goldman, Sachs & Co. acted as lead financial advisor and Lazard Frères & Co. LLC acted as financial advisor to Columbia. Sullivan & Cromwell LLP acted as legal counsel to Columbia.
About TransCanada
With more than 65 years' experience, TransCanada is a leader in the responsible development and reliable operation of North American energy infrastructure including natural gas and liquids pipelines, power generation and gas storage facilities. TransCanada operates a network of natural gas pipelines that extends more than 67,000 kilometres (42,000 miles), tapping into virtually all major gas supply basins in North America. TransCanada is one of the continent's largest providers of gas storage and related services with 368 billion cubic feet of storage capacity. A growing independent power producer, TransCanada owns or has interests in over 11,400 megawatts of power generation in Canada and the United States. TransCanada is developing one of North America's largest liquids delivery systems. TransCanada's common shares trade on the Toronto and New York stock exchanges under the symbol TRP.
