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," said Baldwin.

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 chemicals operation.

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."

Rocco Canonica

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