TransCanada has just made a blockbuster move to acquire Houston-based Columbia Pipeline Group Inc. Including the assumption of Columbia Pipeline Group (CPG) debt, the total enterprise value of the transaction is approximately $13 billion, according to a March 17 statement announcing the deal.
Columbia Pipeline Group Inc. is a Houston-based company that operates an approximate 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.
Under the terms of the all-cash deal, unanimously approved by the boards of directors of both companies, Columbia shareholders will receive $25.50 per common share, an 11 percent premium based on Columbia’s closing stock price on the New York Stock Exchange of $23 as of March 16 and a 32 percent premium to the volume weighted average price over the last 30 days. TransCanada is assuming approximately $2.8 billion of CPG’s debt.
“This transaction delivers tremendous value to our shareholders and places CPG within a leading energy platform that can maximize the value of our strategic positioning and deep inventory of transformational growth projects,” said CPG chairman and CEO Robert C. Skaggs, Jr. “The value presented here is a strong endorsement of our team’s outstanding work. I am confident that this newly enhanced business will continue to deliver on our core commitments to customers, employees, stakeholders and stockholders.”
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. The transaction requires the affirmative vote of holders of a majority of CPG’s outstanding shares.
“This transaction is truly transformational for TransCanada,” said Russ Girling, president and CEO of TransCanada. “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.”
Following completion of the transaction, TransCanada will own the general partner of Columbia Pipeline Partners LP (CPPL), all of CPPL’s incentive distribution rights and all of CPPL’s subordinated units, which represent a 46.5 percent limited partnership interest in CPPL.
“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,” said Russ Girling, TransCanada’s president and chief executive officer. “The assets complement our existing North American footprint which together will create a 91,000-km (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.”
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 11,300 miles of pipelines and 286 billion cubic feet (Bcf) of storage capacity in the Marcellus and Utica shale production areas, and Columbia Gulf Transmission, an approximate 3,300-mile pipeline system that extends from Appalachia to the Gulf Coast.
Columbia is currently advancing $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 $1.7 billion of modernization initiatives to be implemented through 2021.
“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 percent expected annual dividend growth through 2020.”