CALGARY – A deal for Houston-based gas pipeline operator Columbia Pipeline Group Inc. will give TransCanada Corp. use of high-growth U.S. shale plays, analysts said Thursday.
TransCanada, the Calgary-based pipeline company whose Keystone XL oil pipeline project was rejected late last year, issued a statement confirming it had been in talks with a “third party” about a “potential transaction.”
“While we are in discussions regarding a possible transaction having a 3rd party, no agreement has been reached and there’s no assurance these discussions continues or that any transaction will be agreed upon,” TransCanada said.
The company did not give a name for that 3rd party, but a report within the Wall Street Journal named Columbia Pipeline Group as the target in a deal that may be worth about US$12 billion.
“I think it can make sense strategically, but everything has a price,” FirstEnergy Capital Corp. analyst Steven Paget said.
Paget asserted TransCanada is well-positioned in high-growth shale gas formations in northeastern Alberta and northwestern Bc with its existing gas pipeline network. Columbia’s gas pipeline system in Pennsylvania and the northeastern U.S. would give TransCanada exposure to another high-growth shale gas formation known as the Marcellus.
Paget added that Columbia Pipeline can use additional capital to grow its pipeline network, something TransCanada can offer.
Related
Energy rout puts infrastructure dividend growth story in doubtQuebec government files motion for injunction against TransCanada over Energy East pipeline
Spun out of NiSource Inc. in an dpo in 2015, Columbia Pipeline operates a 24,000-kilometre gas pipeline network that analysts say would fit well with TransCanada’s existing gas pipelines.
Columbia Pipeline’s New York-traded shares jumped as much as 15 per cent on the reports before settling back, ending that day at US$21.43, up 8.5 per cent or US$1.68. TransCanada shares were halted briefly and ended the day at $47.63, down 3.2 per cent or $1.57.
Columbia Pipeline has a market capitalization of US$9.4 billion and carries US$3 billion indebted, and therefore a potential transaction might be valued above US$12 billion.
Columbia Pipeline spokesperson James Yardley said his company’s policy isn’t to discuss market rumours.
He also declined to comment on whether Columbia had gone via a strategic review recently, or if the company had been considering a sale.
TransCanada spokesman James Millar also said his company wouldn’t discuss “rumours and speculation” but did comment on the company’s overall method of acquisitions.
“As we’ve said previously, TransCanada remains centered on opportunities that would be in line with our strategy and grow shareholder value,” Millar said.
RBC Capital Markets analyst Robert Kwan said inside a research note that Columbia’s “assets are in a strategically attractive part of The united states where TransCanada does not have a footprint.”
He also said those Columbia assets “are generally adjacent to some of TransCanada’s larger gas assets.”
On TransCanada’s most recent earnings call, chief operating officer Alex Pourbaix signalled that the company was weighing its options and cautiously looking at potential targets.
“For a lot of yesteryear decade we just haven’t seen the values on asset acquisitions or corporate acquisitions,” Pourbaix said.
“We are going to look for transactions that are accretive that fit our strategy, but we all do think we’re inside a pretty good opportunity phase right here from that perspective,” he said.
Over the course of 2015, TransCanada purchased several power plants in Ontario and also the Usa, but grew its pipeline network internally instead of through corporate acquisitions.
gmorgan@nationalpost.com
Twitter.com/geoffreymorgan
Finance News Follow us to find the latest Finance news
