TransCanada Sees Asset Sales Reaching $3B by 2002
TransCanada CEO Doug Baldwin let investors know last week that
this year is just the beginning of the cost-cutting and asset
shuffling at the company. He predicted assets sales would reach $3
billion (out of a total of $26 billion) by the end of 2001,
including what already has been put on the block this year.
"Since coming to TransCanada in July, I believe we've made
significant progress in completing the initiatives we've set out to
accomplish earlier this year. At the same time, it's obvious more
needs to be done and we are committed to completing that work,"
TransCanada sold Angus Chemical to Dow Chemical in the third
quarter. It also sold/transferred ownership in Northern Border to
the newly formed TC Pipelines LP. In addition, the company's
liquids marketing business is expected to be sold in the fourth
quarter, and its gas marketing operations are being moved out of
Houston to three other locations in the U.S., including a new
marketing office in Boston.
Baldwin warned there is still a lot of underperforming fat to be
trimmed, and another so-far-unannounced collection of assets could
go in the fourth quarter. "We're not going to fire sale assets," he
said during an earnings teleconference. "We want to do that with
diligence and care to ensure that we get full value."
It's not hard to guess which divisions could be due for a trim
or a solid chop. Marketing posted a $1 million net loss for the
first nine months of the year. Third quarter results show marketing
down $1 million from 3Q98 to $3 million in net earnings. Processing
took a $2 million net loss in the third quarter compared to a $9
million net gain in 3Q98. It produced $21 million in net income for
the first nine months compared to $27 million last year. Higher net
earnings from the power business have been more than offset by
losses from the Canadian midstream business.
Although TransCanada holds some excellent midstream assets in
Alberta, some may no longer fit in the company without a large
Meanwhile, energy transmission is doing quite well, with $148
million in net income in the third quarter and $494 million for the
first nine months of the year, which was up from $142 million and
$414 million, respectively, last year. All transmission divisions
have shown earnings growth.
Despite the company's lagging stock price, total performance has
been good so far this year. Year-to-date net earnings for 1999 are
$481 million or $1.03 per share compared to $437 million or $0.95
per share in 1998.
Baldwin said the other aspect of the company's strategy involves
moving operations to geographic locations where the company has a
strong presence. TransCanada started doing some of that this week
in Houston. All of the Houston gas marketing and trading positions
are being moved to Boston, Omaha or Calgary. Houston also will lose
the liquids marketing operations when the sale of that division is
completed later this year.
"Geographically we will operate in areas where we have a
distinct advantage. This includes Canada and the northern tier of
the U.S. states [and Latin America]," Baldwin said. "We'll operate
in parts of the value chain where we have expertise and can add
value. These areas include natural gas transmission and power
generation. The strategic and economic value of the other areas of
our business is being evaluated...... We will be focusing on
improving the quality and predictability of our earnings and we
will be doing this by focusing on fee-based rather than
commodity-based businesses. If an asset is not expected to return
its cost of capital, it will be removed from the portfolio. In
addition, we have some very good performing assets that no longer
fit with our strategic direction."