Enbridge to buy three Dominion utilities in deal valued at US$14B
ENBRIDGE INC (ENB:CT)
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Canadian pipeline operator Enbridge Inc. agreed to buy three utilities from Dominion Energy Inc. in a US$9.4 billion deal to create North America’s largest natural gas provider.
The acquisition of the East Ohio Gas Co., Questar Gas Co. and Public Service Co. of North Carolina will double the Calgary-based company’s gas utility business, Enbridge said in a statement Tuesday.
The deal is a massive bet that gas will remain a transition fuel for the foreseeable future even as much of the world tries to phase out fossil fuels to fight climate change. While there’s a strong push to deploy more renewable energy, there’s also a growing recognition that the green transition will take time, ensuring gas will be in demand for years.
“The assets we are acquiring have long useful lives and natural gas utilities are ‘must-have’ infrastructure for providing safe, reliable and affordable energy,” Enbridge Chief Executive Officer Greg Ebel said in the statement.
The move comes as Enbridge, North America’s largest pipeline company, is pushing to position itself for the transition toward cleaner energy. The three companies it’s buying serve customers in Ohio, Utah, Wyoming and North Carolina, where revenue from utility bills is forecast to grow faster than the national average.
“They’re going for that very fixed cash flow,” Bloomberg Intelligence analyst Talon Custer said in an interview.
The transaction is valued at $14 billion including debt. It will be Enbridge’s largest since its acquisition of Spectra Energy Corp. for about $28 billion in 2017, according to data compiled by Bloomberg.
Enbridge shares fell 6.2 per cent as of 9:09 p.m. in after-hours trading in New York while Dominion was 0.3 per cent lower. To help finance the transaction, Enbridge said separately that it plans to raise C$4 billion (US$2.9 billion) in a share sale underwritten by a group of institutions led by RBC Capital Markets and Morgan Stanley.
The deal to buy the companies, which serve seven million homes and businesses across multiple states, will require approvals from regulators, including the Federal Trade Commission to ensure it doesn’t violate antitrust laws. Enbridge said it would start pushing forward to secure the approvals immediately. It expects the deal to close in 2024.
The transaction is also the latest to arise from Dominion’s corporate review launched by CEO Bob Blue late last year to reverse a slumping stock price. Dominion executives said they wanted to focus on the company’s growing electric utility business and pay down debt.
The deal with Enbridge comes nearly two months after the Richmond, Virginia-based Dominion agreed to sell a US$3.3 billion stake in a Maryland liquefied natural gas export project to Berkshire Hathaway Energy.
Dominion said Tuesday the sale of its gas distribution utilities would help it improve the company’s funds from operations to debt ratio by 3.4 per cent. Blue said the company will provide an update on its review during the fourth quarter.
Morgan Stanley and RBC were Enbridge’s financial advisers on the deal while Sullivan & Cromwell LLP and McCarthy Tétrault LLP were its legal advisers. Dominion’s financial advisers were Citigroup Inc. and Goldman Sachs Group Inc., and its legal adviser was McGuireWoods LLP.
The group of underwriters for the equity sale also includes BMO Capital Markets, CIBC Capital Markets, National Bank Financial Markets, Scotiabank, and TD Securities.
With assistance from Ruth Liao.
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