El Paso Corp., owner of the longest U.S. natural-gas pipeline network, agreed to sell stakes in two interstate pipeline systems and a liquefied natural gas terminal in Georgia to an affiliate for $1.13 billion.
The transaction would give El Paso Pipeline Partners LP full ownership of terminal-owner Southern LNG Co. and El Paso Elba Express Co. as well as a 60 percent stake in Southern Natural Gas Co., the partnership said in a statement today.
Elba Express and Southern Natural Gas are pipeline systems serving the southeast. Southern LNG owns the Elba Island terminal near Savannah, Georgia, which can handle as much as 1.8 billion cubic feet of gas a day from tankers that deliver it in liquefied form.
“It’s a little bit bigger transaction than expected,” Carl Kirst, a Houston-based analyst for BMO Capital Markets, said today in an interview. He rates the shares at “outperform” and owns none. “It’s a good transaction price for El Paso, but not so steep that the partnership doesn’t find it immediately cash accretive.”
The deal, expected to close this month, is its third and largest purchase this year from El Paso Corp., bringing the total to more than $2.4 billion, El Paso Pipeline Partners said. El Paso Corp., based in Houston, owns 52 percent of the pipeline partnership and controls it through ownership of its general partner.
El Paso Pipelines is paying for the deal with $415 million in cash and may finance the rest of it through a combination of debt and equity offerings and a promissory note to El Paso Corp.
Adding Cash Flow
The purchase will immediately add to the partnership’s cash flow, Jim Yardley, chief executive officer of El Paso Pipelines, said in the statement. The partnership’s management will recommend raising the quarterly cash payout to unit holders to 44 cents from 41 cents, according to the statement.
El Paso has said it would sell assets to the partnership to raise cash for expansion.
El Paso Corp. rose 27 cents, or 2 percent, to $13.73 at 4 p.m. in composite trading on the New York Stock Exchange. El Paso Pipeline Partners’ units fell 20 cents to $34.48.
Tudor, Pickering, Holt & Co. served as a financial adviser to the general partner’s board and gave an opinion on the fairness of the transaction’s terms.
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