Instant Analysis: TransCanada to Acquire Columbia Pipeline Group for $13 Billion

By Markets Fool.com

What happened?
If you can't build it, you might as well buy it elsewhere. That seems to be the philosophy behind TransCanada's latest big purchase. The company announced that it has reached a deal to acquire U.S. peer Columbia Pipeline Group in an all-cash deal. The total consideration is around $13 billion, including debt assumption.

Continue Reading Below

IMAGE SOURCE: TRANSCANADA.

Columbia controls a 15,000 mile network of natural gas pipelines stretching from New York state to the Gulf of Mexico.

The agreed price of the acquisition boils down to $25.50 per share for Columbia stock. This represents a premium of approximately 11% on the closing price the day before the deal was announced. The acquisition is subject to approval by Columbia stockholders, and the relevant regulatory bodies. It is expected to close in the second half of this year.

Does it matter?
TransCanada has had a tough time in its attempts to build out its pipeline network to cover strategic tar sands assets in its native country. Its most notorious recent defeat was the Keystone XL pipeline project, which was turned down last year by the U.S. government following vehement opposition from environmental interests.

So, buying Columbia and its natural gas network is a sensible alternative. The network is extensive, and has a presence on strong energy plays. In the press release heralding the deal, TransCanada quoted its CEO Russ Girling as saying that the deal "represents a rare opportunity to invest in an extensive, competitively positioned, growing network of regulated natural gas pipeline and storage assets in the Marcellus and Utica shale gas regions."

Continue Reading Below

That matters, because relatively low-cost gas from those plays is putting a dent in TransCanada's volumes. Owning Columbia's assets helps alleviate that problem, although it doesn't address the issue of servicing those landlocked tar sands in Canada.

As such, it's a good -- though pricey -- move by TransCanada that should pay off once Columbia's business is fully integrated. For Columbia shareholders, although the buyout doesn't represent a huge premium, it's a premium regardless and it'll probably be welcomed.

The article Instant Analysis: TransCanada to Acquire Columbia Pipeline Group for $13 Billion originally appeared on Fool.com.

Eric Volkman has no position in any stocks mentioned. Nor does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.