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Merger to Form Energy Pipeline Giant

Tuesday, March 22, 2016

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The company known for the controversial Keystone Pipeline project, which sought to carry crude oil from the oil sands in Alberta, Canada, through the U.S. and on to the Gulf of Mexico, has announced plans to purchase a Houston, TX-based company that operates a network of interstate natural gas pipelines in the U.S.

TransCanada Corporation revealed it had entered into an agreement and plan of merger to acquire Columbia Pipeline Group Inc. in a statement released Thursday (March 17).

Per the terms of the all-cash deal, unanimously approved by the boards of directors of both companies, the Calgary, Alberta-based energy company is slated to buy CPG for $10.2 billion in a deal valued at $13 billion, including debt.

Keystone pipeline construction
Images © TransCanada Corporation. All rights reserved.

TransCanada Corporation revealed Thursday (March 17) it had entered into an agreement and plan of merger to acquire Houston, TX-based Columbia Pipeline Group Inc.

CPG operates an approximate 24,000-kilometre (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.

When complete, the acquisition will create one of North America's largest regulated natural gas transmission businesses, TransCanada stated.

"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-kilometre (57,000-mile) natural gas pipeline system connecting the most prolific supply basins to premium markets across the continent,” Girling added.

“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."

The deal is expected to close in the second half of 2016 and is subject to CPG shareholder approval and certain regulatory approvals.

Interstate Natural Gas Network

As one of the largest interstate natural gas pipeline systems in the U.S., CPG provides 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 kilometres (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.

CPG is said to be advancing $5.6 billion of commercially secured projects, subject to normal course regulatory and permitting processes, that are expected to generate growth in earnings as they enter service.

In addition to existing long-term contracts, CPG has agreements with customers to undertake approximately $1.7 billion of modernization initiatives through 2021, which are also expected to generate additional growth.

TransCanada gas pipeline install

When complete, the acquisition will create one of North America's largest regulated natural gas transmission businesses, TransCanada stated.

"This transaction delivers tremendous value to our shareholders and places Columbia Pipeline Group within a leading energy platform that can maximize the value of our strategic positioning and deep inventory of transformational growth projects," said Robert C. Skaggs, Jr., CPG's chairman and chief executive officer.

"This transaction is truly transformational for TransCanada," Girling noted in an announcement from CPG. 

"CPG's interstate pipeline and midstream assets sit directly on top of the fastest growing areas of the Marcellus and Utica Shale regions,” Girling added. “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."

Upon closing of the transaction, CPG will become an indirect wholly owned subsidiary of TransCanada and will cease to be a publicly held corporation.

TransCanada will own the general partner of Columbia Pipeline Partners LP, 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.  CPPL will remain a publicly traded partnership, CPG noted.

Funding and Growth

In order to finance the deal, TransCanada plans to sell its U.S. Northeast merchant power assets and a minority interest in its Mexican natural gas pipeline business, the announcement indicated.

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, TransCanada explained.

Additionally, the company reports that it has secured $10.3 billion of credit through a group of lenders in the meantime.

TransCanada power

In order to finance the deal, TransCanada plans to sell its U.S. Northeast merchant power assets and a minority interest in its Mexican natural gas pipeline business, it said; in the interim, the company reports that it has secured $10.3 billion of credit through a group of lenders

"TransCanada intends to fund the acquisition and our significant future growth program in a manner that maintains our strong financial position," said Girling.

"This will provide us with the financial capacity and flexibility required to prudently execute an industry-leading portfolio of attractive growth opportunities through all parts of the economic cycle and pay a strong and growing dividend to our shareholders."

Over the coming years, TransCanada anticipates its $13.5 billion portfolio of near-term investment opportunities, combined with CPG's $7.3 billion of commercially secured projects and approximately $250 million of targeted annual cost, revenue and financing benefits, should to deliver significant shareholder value.

"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," said Girling.

   

Tagged categories: Acquisitions; Business matters; Business operations; Mergers; North America; Oil and Gas; Pipelines; Pipes; Program/Project Management

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