TransCanada CEO Doug Baldwin let investors know last week thatthis year is just the beginning of the cost-cutting and assetshuffling at the company. He predicted assets sales would reach $3billion (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 madesignificant progress in completing the initiatives we’ve set out toaccomplish earlier this year. At the same time, it’s obvious moreneeds to be done and we are committed to completing that work,”said Baldwin.
TransCanada sold Angus Chemical to Dow Chemical in the thirdquarter. It also sold/transferred ownership in Northern Border tothe newly formed TC Pipelines LP. In addition, the company’sliquids marketing business is expected to be sold in the fourthquarter, and its gas marketing operations are being moved out ofHouston to three other locations in the U.S., including a newmarketing office in Boston.
Baldwin warned there is still a lot of underperforming fat to betrimmed, and another so-far-unannounced collection of assets couldgo in the fourth quarter. “We’re not going to fire sale assets,” hesaid during an earnings teleconference. “We want to do that withdiligence and care to ensure that we get full value.”
It’s not hard to guess which divisions could be due for a trimor a solid chop. Marketing posted a $1 million net loss for thefirst nine months of the year. Third quarter results show marketingdown $1 million from 3Q98 to $3 million in net earnings. Processingtook a $2 million net loss in the third quarter compared to a $9million net gain in 3Q98. It produced $21 million in net income forthe first nine months compared to $27 million last year. Higher netearnings from the power business have been more than offset bylosses from the Canadian midstream business.
Although TransCanada holds some excellent midstream assets inAlberta, some may no longer fit in the company without a largechemicals operation.
Meanwhile, energy transmission is doing quite well, with $148million in net income in the third quarter and $494 million for thefirst nine months of the year, which was up from $142 million and$414 million, respectively, last year. All transmission divisionshave shown earnings growth.
Despite the company’s lagging stock price, total performance hasbeen 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 $0.95per share in 1998.
Baldwin said the other aspect of the company’s strategy involvesmoving operations to geographic locations where the company has astrong presence. TransCanada started doing some of that this weekin Houston. All of the Houston gas marketing and trading positionsare being moved to Boston, Omaha or Calgary. Houston also will losethe liquids marketing operations when the sale of that division iscompleted later this year.
“Geographically we will operate in areas where we have adistinct advantage. This includes Canada and the northern tier ofthe U.S. states [and Latin America],” Baldwin said. “We’ll operatein parts of the value chain where we have expertise and can addvalue. These areas include natural gas transmission and powergeneration. The strategic and economic value of the other areas ofour business is being evaluated…… We will be focusing onimproving the quality and predictability of our earnings and wewill be doing this by focusing on fee-based rather thancommodity-based businesses. If an asset is not expected to returnits cost of capital, it will be removed from the portfolio. Inaddition, we have some very good performing assets that no longerfit with our strategic direction.”
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