Subject to bankruptcy court approval and the results of an auction process, TransCanada Pipelines plans to buy Gas Transmission Northwest Corp. (GTN) from National Energy & Gas Transmission (NEGT) for US$1.703 billion, including US$500 million of assumed debt. The deal would extend TransCanada’s massive Canadian pipeline grid through the Pacific Northwest to California and Nevada.
GTN, formerly Pacific Gas Transmission, includes more than 1,350 miles of pipeline extending from a point near Kingsgate, British Columbia, on the BC-Idaho border, to a point near Malin, OR, on the Oregon-California border. GTN also operates the recently built 80-mile North Baja Pipeline system, which links the Southwest gas grid from a point near Ehrenberg, AZ, to markets in Baja California Norte, Mexico. The sale of the North Baja pipeline is subject to a right of first refusal by another company. And the sale of GTN has a few hurdles of its own.
NEGT, a subsidiary of PG&E Corp., voluntarily filed for Chapter 11 bankruptcy protection in July 2003. As a result, the sale will be subject to a court-sanctioned auction process in accordance with customary bidding procedures approved by the court. NEGT must seek offers that are higher or better than the TransCanada deal. According to GTN, it previously received expressions of interest from nine bidders.
However, as part of the agreement, TransCanada is being granted certain protections, subject to court approval, most notably a break fee and expense reimbursement if another bid is accepted. TransCanada also retains the right to amend its offer should NEGT receive an offer that is superior to its existing agreement with TransCanada.
The companies expect final bankruptcy court approval within 75 days. The agreement also contemplates bankruptcy court approval of the NEGT plan of reorganization. The sale also is subject to regulatory and antitrust review.
GTN would give TransCanada 2.59 Bcf/d of transportation capacity to Pacific markets downstream of its BC System. The company said the purchase would be accretive to earnings to earnings and cash flow.
TransCanada said it would finance the acquisition with existing lines of credit and equity, but it also may sell off other assets to pay for the pipelines. It has C$1.5 billion of committed credit lines, and C$1.35 billion and US$650 million of debt and/or equity issuance capacity under its Canadian and U.S. shelf prospectuses, respectively.
It would be TransCanada’s biggest purchase since its C$14 billion ($11 billion) takeover of Nova Corp. in 1998, but would follow several other recent deals that expand its interest in pipelines to the U.S. Northeast. In December, TransCanada increased its ownership interest in Portland Natural Gas Transmission (PNGTS) to about 62% from 43% by purchasing a stake from El Paso Corp. for US$82 million including US$50 million of assumed debt. Earlier this month, plans were announced to expand its system in Ontario to accommodate volumes to supply the proposed Millennium pipeline via Empire State in New York.
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