Photographer: Daniel Acker/Bloomberg

The Columbia Pipeline That's Not Rallying on TransCanada Buyout

  • Investors bid down related partnership on buyer's silence
  • Barclays for one, sees TransCanada paring investor payout

After TransCanada Corp. offered $25.50 a share for Columbia Pipeline Group Inc., the stock surged to nearly $25, surprising almost no one. Harder to explain was the 18 percent drop at Columbia Pipeline Partners LP, the tax-advantaged master limited partnership that the group controls.

TransCanada said nothing about its plans for the partnership, whose owners expect it to grow in value and pay out higher distributions at a pace of about 20 percent a year, analysts and investors said. The partnership was expected to gradually buy up the assets of its parent at prices that would support that growth, as other MLPs have done.

Barclays Plc analyst Christine Cho forecast slower growth in the partnership’s investor payout under TransCanada’s control and cut her target price for the units 21 percent to $15. “News was slight on strategy for the MLP,” she wrote in research published Friday. TransCanada already has its own MLP, so its course for the Columbia partnership lacks clarity, she said.

Investors may be worried that TransCanada will buy up the MLP cheaply, leaving them on the hook for capital gains taxes that would cut into their returns, Skip Aylesworth, who manages about $1.5 billion in Boston including the Hennessy Gas Utility Fund, said Thursday by phone.

“Investors have seen this play out before,” said Kenny Feng, chief executive officer of Alerian Capital Management LLC, which manages indexes that track MLPs. In 2014, Kinder Morgan Inc. bought up its partnerships, including Kinder Morgan Partners LP, for cash and stock.

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