TransCanada Corporation announced on Thursday its intention to buy Houston-based Columbia Pipeline Group for $10.2 billion. The purchase would give the Canadian pipeline giant, whose main business has been moving natural gas from wells in western Canada to the consumer markets in eastern Canada and the North-east United States, a stake in the rich Marcellus and Utica shale plays.
Columbia Pipeline Group was created 12-months ago, after a utility company in Indiana, NiSource, spun its natural gas assets into a publicly traded company. The company currently owns more than 15,000 miles of pipelines stretching from New York to the Gulf of Mexico, positioned near some of the more lucrative shale natural gas basins in the United States. As a result of the planned acquisition, TransCanada will own about 57,000 miles of gas pipelines as well as 286 billion cubic feet of natural gas storage capacity.
“It’s very complementary to what they already have,” Skip Aylesworth, who manages about $1.5 billion in Boston including the Hennessy Gas Utility Fund, told Bloomberg. Hennessy holds shares of both TransCanada and Columbia. “They have an east-west superhighway in Canada. This gives them a north-south superhighway,” Aylesworth added.
“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,” Russ Girling, TransCanada’s president and CEO, said in a statement.
TransCanada was recently in the news when the Obama administration decided in November 2015 not to grant a permit for Keystone XL, which was intended to bring oil sands production down to refineries on the Gulf Coast in the United States. Now, in a move designed to adjust to the new market conditions created by the surging gas production from American shale, the company has considered converting portions of its Alberta-to-Ontario Canadian Mainline to carry oil instead of gas, as demand along that route has slackened.
Meanwhile, Columbia is busy making adjustments of its own, reversing a pipeline that traditionally moved gas from the Gulf Coast to the Midwest and re-purposing it to carry gas from the Northeast southward.
The purchase is expected to close in the second half of 2016 and is contingent on approval from shareholders of Columbia, who are expected to get $25.50 a share — a premium of 10.9 percent to Columbia’s closing stock price as of Thursday. TransCanada will also assume $2.8 billion of Columbia’s debt.
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