Major North American energy infrastructure company TransCanada Corp. TRP has agreed to acquire U.S. midstream operator Columbia Pipeline Group Inc. CPGX for $13 billion, including the assumption of $2.8 billion in debt.
Under the terms of the agreement, Columbia Pipeline shareholders will receive $25.50 in cash for each share they hold. This offer values Columbia Pipeline shares at an 11% premium to the pre-announcement closing price.
Houston, Texas-based Columbia Pipeline operates a 24,000-kilometre interstate natural gas pipeline system that runs from New York to the Gulf of Mexico. The company’s assets also include Columbia Gas Transmission, which controls 18,000 kilometers of pipelines and 286 billion cubic feet of natural gas storage units in the Marcellus and Utica shale regions.
Additionally, Columbia Pipeline owns Columbia Gulf Transmission – a 5,400 kilometer long principal interstate pipeline connecting Appalachia to the Gulf Coast – and controls a master limited partnership, Columbia Pipeline Partners L.P. CPPL engaged in the transmission and storage of natural gas.
The transaction has been okayed by the boards of both companies but awaits regulatory and shareholder approval. We expect the buyout to conclude in the second half following which TransCanada – builder of the controversial Keystone XL pipeline – will get the general partner interest and the incentive distribution rights in Columbia Pipeline Partners plus 46.5% of its limited partnership interest. It must be noted that TransCanada already owns TC PipeLines, L.P. TCP, a master limited partnership in the U.S.
Should the deal go through, TransCanada will be able to expand its already impressive transmission network with Columbia Pipeline’s strategically located assets. Apart from scale advantages and increasing Calgary, Alberta-based TransCanada’s network reach, the Columbia Pipeline buy will help the company gain C$9.6 billion in near-term commercial projects and deliver significant shareholder returns over the coming years.
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