AltaGas Joins Canadian Spree in U.S. With $4.6 Billion Deal
By Mark Chediak, Bloomberg News
Add AltaGas Ltd. to the list of Canadian companies that can’t seem to get enough of America’s energy assets.
The Calgary power and gas supplier agreed on Wednesday to buy WGL Holdings Inc. — owner of the Washington utility that supplies natural gas to the White House — for $4.6 billion. The takeover will expand its reach in the U.S., where it already owns power plants and two natural gas distributors. The company also plans to invest $1.8 billion in the Marcellus and Utica shale formations of the eastern U.S.
WGL rose 3 percent to $81.11 at 12:45 p.m. on Thursday in New York, trading below the offer price of $88.25 a share with analysts citing past holdups in utility deals getting approved by local regulators. AltaGas fell 6.3 percent to C$31.23.
The takeover is yet another testament to the growing interest in natural gas distributors as demand for the heating fuel rises and Canada’s hunger for U.S. energy assets. Enbridge Inc. and TransCanada Corp. struck multibillion-dollar deals for pipeline owners south of the border, and Fortis Inc. bought American power-line operator ITC Holdings Corp. for almost $7 billion last year. Duke Energy Corp. and Southern Co. are among those that have also bought gas utilities in recent years.
“For Canadian utilities looking for growth, there aren’t that many utilities in Canada to buy,” said Kit Konolige, an analyst for Bloomberg Intelligence. “They’ve been active in acquiring and looking at U.S. gas and electric companies.”
Last year, Canada-based Algonquin Power & Utilities Corp. struck a deal to buy Empire District Electric Co., based in Joplin, Missouri, for $1.49 billion. Halifax, Nova Scotia-based Emera Inc. agreed to buy Florida’s Teco Energy Inc. for about $6.5 billion a year earlier.
AltaGas’s all-cash deal represents a 12 percent premium over WGL’s closing price Tuesday, according to the company’s statement Wednesday. WGL was said to be in merger talks with AltaGas earlier this month and had been weighing a sale since last year after attracting takeover interest from Spain’s Iberdrola SA.
Regulatory obstacles in Washington can prove difficult to surmount. Exelon Corp.’s $6.8 billion purchase of Pepco Holdings was rejected twice before finally being cleared by the District of Columbia Public Service Commission last year.
“There is probably additional uncertainty due to the Pepco-Exelon transaction which had a lot of turmoil and controversy surrounding it and is in the same regulatory jurisdiction,” said Andrew Smith, a utility analyst at Edward D. Jones. “That’s probably a significant reason why the shares are trading below the offer price.”
AltaGas Chief Executive Officer David Harris described the company’s compatibility with WGL as “exceptional.” AltaGas said it will assume about $1.84 billion in debt as part of the transaction.
With WGL, AltaGas will have three U.S. gas utilities: It already owns Semco Energy Gas Co. in Michigan and Enstar Natural Gas Co. in Alaska. WGL’s Washington Gas supplies the fuel to more than one million customers in the District of Columbia, Maryland and Virginia, the company’s website shows. WGL plans to maintain its headquarters in the District.
The takeover comes as President Donald Trump is looking to renegotiate trade agreements with Canada. The transaction, which needs federal and state regulatory approvals, is expected to close in the second quarter of 2018, the companies said in a call with reporters.
When asked whether Trump could block the deal, AltaGas Services President John O’Brien said during the call, “We are already here as a company. We are here, and we have a large presence in the country. The reason we are excited about this is the growth opportunities that we have in the U.S.”
The Trump Administration didn’t immediately return a request for comment.
AltaGas runs power plants across North America, including in California and Colorado, that are together capable of generating more than 1,600 megawatts, according to the company’s website.
JPMorgan Chase & Co. and TD Securities Inc. acted as financial advisers for AltaGas, while Vinson & Elkins and Stikeman Elliott acted as legal advisers.
Goldman Sachs Group and Lazard Ltd. were financial advisers to WGL. Kirkland & Ellis and Covington & Burling provided legal advice.