Establishing itself as one of the largest natural gas storage operators in North America, TransCanada Corp. said Thursday that the company and its TC Pipelines partnership have closed on the previously announced US$4.135 billion acquisition of El Paso Corp.'s ANR Pipeline Co., its Michigan storage assets, and its 50% interest in Great Lakes Gas Transmission. El Paso said the sale, which was first announced in late December (see Daily GPI, Dec. 26, 2006), includes the assumption of US$744 million of debt as of Dec. 31, 2006, US$269 million of which has been retired.
Under the agreement, TransCanada now owns ANR and an additional 3.55% interest in Great Lakes Gas Transmission LP. The total purchase price to TransCanada was US$3.4 billion, which includes US$488 million of assumed debt. TC PipeLines LP, of which TransCanada is the general partner with a 32% interest, acquired a 46.45% interest in Great Lakes Gas Transmission LP for US$962 million, which includes US$212 million of assumed debt.
"With the acquisition of ANR, TransCanada's wholly owned natural gas pipeline network extends more than 59,000 kilometers and offers our customers unparalleled connections from traditional and emerging supply basins to growing North American markets," said TransCanada CEO Hal Kvisle. "By acquiring more than 230 Bcf of natural gas storage capacity, TransCanada has interests in approximately 360 Bcf of storage capacity, making us one of North America's largest gas storage operators."
TransCanada expects the acquisition to be accretive to earnings in 2007. The acquisition was financed through a C$1.5 billion subscription receipts offering that closed on Feb. 14; cash on hand; and funds drawn on newly established bridge and term loan facilities. In connection with the offering of the subscription receipts, TransCanada granted the underwriters the option to purchase an additional 5.92 million common shares at a price of C$38.00 per common share at any time up to and including March 16.
ANR operates one of the largest interstate natural gas pipeline systems in the United States, providing transportation, storage, and various capacity-related services to a variety of customers in both the U.S. and Canada. The system consists of 10,500 miles (17,000 kilometers) of pipeline with a peak-day capacity of 6.8 Bcf/d. It transports natural gas from producing fields in Louisiana, Oklahoma, Texas and the Gulf of Mexico to markets in Wisconsin, Michigan, Illinois, Ohio and Indiana. The pipeline system also connects with several other pipelines providing customers with access to diverse sources of supply from Western Canada and the Rocky Mountain region and access to a variety of end-user markets in the midwestern and northeastern United States.
ANR also owns and operates several underground natural gas storage facilities in Michigan with a total capacity of 230 Bcf. As part of the acquisition TransCanada also obtained certain gas supplies contained within production and storage reservoirs in Michigan.
Lee Hobbs has been appointed vice president and general manager, U.S. Pipelines Central. Based in Houston, TransCanada said he will be responsible for the operation of ANR and Great Lakes. A new executive leadership team has been selected for ANR and Great Lakes, which includes executives from TransCanada, ANR and Great Lakes.
"With the acquisition of Great Lakes, the partnership [TC PipeLines LP] now has interests in more than 3,600 miles of federally regulated U.S. interstate natural gas pipelines delivering to a diverse market base in the Western, Midwestern, and Northeastern U.S. as well as Eastern Canada," said Russ Girling, CEO of the general partner, TC PipeLines GP Inc. "As a result of the partnership's acquisition activity in the past year, we have significantly expanded the size of our asset base and strengthened the partnership."
The acquisition was partially financed through a private placement of more than 17 million common units at C$34.57 per common unit for gross proceeds of C$600 million. The placement closed concurrently with the acquisition. The common units were sold to new and existing institutional accredited investors. The partnership financed the balance of the total consideration with a draw on its C$950 million senior debt credit facility.
Great Lakes owns and operates a 2,115 mile interstate natural gas pipeline system with a design capacity of 2.5 Bcf/d. Extending from the Minnesota-Manitoba border at Emerson to the Michigan-Ontario border at St. Clair, Great Lakes provides a direct link between Western Canada's abundant natural gas basin and major industrial and market centers in Minnesota, Wisconsin, Michigan and eastern Canada.
When the acquisition closes, TransCanada's portfolio of energy infrastructure assets will include the following:
In making the deal, El Paso called the divestiture a "transformational event" for the company. "We are very pleased with the timely closing of this important transaction," said El Paso CEO Doug Foshee. "This sale restores our financial flexibility and improves our credit statistics to a level that is at or near investment grade, while maintaining the company's earnings outlook."
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