Canadian pipeline operator Enbridge (ENB) on Tuesday said it is buying three utilities from Dominion Energy (D) for a combined value of $14 billion. The three utilities are East Ohio Gas Co, Questar Gas and Public Service Company of North Carolina for a combined value of $14 billion. The agreements will create the biggest natural-gas utility in North America. The terms include $9.4 billion of cash and $4.6 billion of assumed debt, Enbridge (ENB) said in a statement. Enbridge’s stock (ENB) fell 5% in extended trading.
The deal with Enbridge comes nearly two months after Berkshire Hathaway Energy (BRK.A) (BRK.B) agreed to acquire Dominion Energy’s (D) 50% stake in the Cove Point LNG plant in Maryland in a deal valued at $3.3 Billion. B
Enbridge expects the deals to close next year, expanding the company’s gas utilities in Ohio, North Carolina, Utah, Idaho and Wyoming.
“Acquiring these natural gas utilities makes strong strategic and financial sense. Enbridge is currently the only major pipeline and midstream company that owns a regulated gas utility and we’ve further strengthened that position today by doubling the size of our GDS (gas distribution and storage) business,” Patrick Murray, CFO of Enbridge, said in a statement.
The transaction is valued at $14 billion including debt. It will be Enbridge’s largest since its acquisition of Spectra Energy Corp. for about $28 billion in 2017.
Morgan Stanley and RBC were Enbridge’s financial advisers on the deal while Sullivan & Cromwell LLP and McCarthy Tétrault LLP were its legal advisers. Dominion’s financial advisers were Citigroup Inc. and Goldman Sachs Group Inc., and its legal adviser was McGuireWoods LLP.
The agreement with Enbridge comes 10 months after Dominion Energy (D) said it would begin a thorough review of its business to improve results.
Stock Market Reaction
Enbridge Inc. NYSE: ENE
- $33.49 ▼ -1.79 (-5.09%) today
- $33.49 ▼ -7.35 (-18%) past year
- $33.49 ▼ -0.38 (-1.12%) past 5 years
- 52wk High 43.03
- 52wk Low 32.91
Dominion Energy Inc NYSE: D
- $46.07 ▼ -0.72 (-1.54%) today
- $46.07 ▼ -35.42 (-43.46%) past year
- $46.07 ▼ -25.78 (-35.88%) past 5 years
- 52wk High 84.45
- 52wk Low 45.88
Dominion Continuing Debt Reduction Plan
The deal with Enbridge comes nearly two months after Berkshire Hathaway Energy (BRK.A) (BRK.B) agreed to acquire Dominion Energy’s (D) 50% stake in the Cove Point LNG plant in Maryland in a deal valued at $3.3 Billion. Berkshire Hathaway Energy (BRK.A) (BRK.B) currently operates the facility and owns a 25% limited partner interest in Cove Point LNG, will own a 75% stake after the deal closes, with Brookfield Infrastructure Partners (BIP) holding the remaining 25% interest.
Dominion said Tuesday the sale of its gas distribution utilities would help it improve the company’s funds from operations to debt ratio by 3.4%.
Via investor presentation.
Analyst Response
Enbridge downgraded to Equal Weight from a previous investment rating of Overweight by analysts at Wells Fargo.
The bank lowered its price target on Enbridge’s (ENB) stock listed on the Toronto Stock Exchange to C$50 a share from C$58 a share, based on a sum-of-the-parts analysis.
They said the debt load will weigh on its stock after financing its $14 billion purchase of several natural gas-distribution companies from Dominion Energy (D).
“Our Equal Weight rating on Enbridge (ENB) is based on our view that 2024 will be a transition year for the company focused on debt paydown and right-sizing the balance sheet following the company’s C$19B acquisition ($14 billion) of utility assets,” Praneeth Satish, analyst at Wells Fargo, said in a September 6 report.
“In the current environment, we believe midstream and energy investors at large are keenly focused on free cash flow and capital return,” Wells Fargo said. “This acquisition is negative to both metrics, which we believe outweighs the positives of the deal.”
About Enbridge
“At Enbridge, we safely connect millions of people to the energy they rely on every day, fueling quality of life through our North American natural gas, oil or renewable power networks and our growing European offshore wind portfolio. We’re investing in modern energy delivery infrastructure to sustain access to secure, affordable energy and building on two decades of experience in renewable energy to advance new technologies including wind and solar power, hydrogen, renewable natural gas and carbon capture and storage. We’re committed to reducing the carbon footprint of the energy we deliver, and to achieving net zero greenhouse gas emissions by 2050. Headquartered in Calgary, Alberta, Enbridge’s common shares trade under the symbol ENB on the Toronto (TSX) and New York (NYSE) stock exchanges. “via Website
Source: Enbridge
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