AltaGas Ltd. has agreed to buy Vancouver-based Pacific Northern Gas Ltd. (PNG) for C$36.75/share (approximately C$230 million), a 20% premium based on the C$30.50 Oct. 28 closing price for PNG shares, the Calgary-based company said Monday.

The all-cash deal, which would increase AltaGas’s customer base from 75,000 to more than 110,000, is expected to be immediately accretive to earnings and cash flow, AltaGas said. The deal has already been approved by the boards of directors of both companies. Assuming it is approved by PNG shareholders at a special meeting expected to be held by Dec. 12, the Supreme Court of British Columbia (BC), the British Columbia Utilities Commission and other customary conditions, the transaction is expected to close by Dec. 16.

AltaGas is an energy infrastructure company with a focus on natural gas, power and regulated utilities. Its utility business is comprised of AltaGas Utilities Inc., Heritage Gas and one-third interests in Inuvik Gas Ltd. and Ikhil Joint Venture.

PNG’s western transmission line extends from the Spectra Energy gas transmission system north of Prince George to tidewater at Kitimat and Prince Rupert. In the northeast, PNG subsidiary Pacific Northern Gas Ltd. provides gas distribution service in the Dawson Creek, Fort St. John and Tumbler Ridge areas.

AltaGas said the deal is consistent with its strategy of building a leading energy infrastructure company underpinned by low-risk, long-life assets.

“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,” the company said. “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.”

In February PNG sold for $50 million its interest in Pacific Trail Pipelines LP to Apache Canada Ltd. and EOG Resources Canada Inc., the partners behind Kitimat LNG (see Daily GPI, Feb. 8). The deal was intended to support export of gas from the Horn River Basin and other Western Canada plays as liquefied natural gas (LNG) to Asian markets. PNG will operate and maintain the planned pipeline under a seven-year agreement with Apache Canada and EOG Canada with provisions for five-year renewals. Apache Canada and EOG Canada also agreed to 20-year transportation service arrangements requiring them to use a portion of PNG’s current pipeline capacity.

Standard & Poor’s Ratings Services (S&P) said it does not expect the deal to affect AltaGas’s ratings or its approximately C$1.175 billion of rated unsecured debt and C$200 million of preferred shares.

“Although AltaGas will fund the cash purchase with existing credit facilities, we expect the company to refinance with long-term debt and equity, in keeping with its capital structure,” S&P said. “We believe that regulation will support a strong-to-excellent business risk profile for the subsidiary’s cash flow to AltaGas, but the transaction’s small size is not sufficient to move the company’s satisfactory business risk profile on its own.”

Last week AltaGas reported 3Q2011 net income of $C10.6 million compared with C$6.0 million in 3Q2010 and increased its dividend rate to C$1.38/share from C$1.32/share.

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