AltaGas To Acquire Pacific Northern Gas
To buy company, gaining E&P assets in the Montney and Horn River areas and increased industrial activity in northern BC.
AltaGas Ltd. (Toronto: ALA) entered into a definitive agreement to acquire all of the outstanding common shares of Pacific Northern Gas Ltd. for CAD$36.75 (US$36.95) cash per share.
"PNG is an outstanding strategic fit for AltaGas," said David Cornhill, chairman and chief executive of AltaGas. "PNG's management team and employees have a strong track record of delivering safe and reliable service to their customers and have excellent relationships with the communities in which they operate. We are pleased to welcome all PNG employees to our team. AltaGas has a long history of operating natural gas utilities across Canada and we will continue to deliver safe and reliable service to our customers."
The offer represents a 20% premium based on the CAD$30.50 (US$30.67) closing price of PNG shares on October 28, 2011 and a 28% premium based on the volume weighted average trading price for the 20 prior trading days. The transaction is valued at approximately CAD$230 million (US$231 million), including assumed debt expected to approximate CAD$85 million (US$86 million) and CAD$5 million (US$5 million) preferred shares. The transaction values the regulated rate base of approximately CAD$174 million (US$175 million) at approximately 1.2 times. The regulated assets earn an allowed rate of return of approximately 10.1% with a weighted average equity thickness of approximately 44%. The acquisition is expected to be immediately accretive to earnings and cash flow. The estimated CAD$140 million (US$141 million) cash required to close the transaction will be funded by existing credit facilities and cash on hand.
The acquisition of PNG is consistent with AltaGas' strategy of building one of Canada's leading energy infrastructure companies underpinned by low-risk, long life assets. The transaction will result in a 50% increase in AltaGas' regulated rate base to over US$500 million (US$503 million) and increase customers from 75,000 to more than 110,000. Increased natural gas exploration taking place in areas such as the Montney and Horn River and increased industrial activity in northern BC are expected to result in rate base and customer growth as areas such as Dawson Creek and Fort St. John see increased economic activity. There is also significant geographic alignment with other key AltaGas assets such as the Bear Mountain Wind Park and the Younger facility, BC's only natural gas liquids extraction plant.
PNG's run-of-river assets also fit well with AltaGas' renewable strategy. AltaGas expects to complete construction of three of its run-of-river projects by 2016. The first, 195 MW Forrest Kerr project is expected to be in service in July 2014. The McLymont Creek and Volcano Creek projects with approximately 82 MW in total are expected to be in service in mid-2015 and mid-2016 respectively.