Dominion to Buy Questar for $4.4 Billion to Boost Gas Sales

Updated on
  • Acquisition represents a 23% premium for Questar holders
  • Dominion will add 1 million customers in the U.S. west

Dominion Resources Inc., the owner of Virginia’s largest utility, said it will buy Questar Corp. for about $4.4 billion to expand its holdings in better-performing natural gas assets, extending a trend of power companies buying shippers of the fuel.

Questar holders would get $25 a share in the deal, expected to close by year-end, Richmond, Virginia-based Dominion said Monday in a statement. Dominion will assume about $1.6 billion of debt, company spokesman Ryan Frazier said by phone. The cash price represents a 23 percent premium to Questar’s Jan. 29 closing price.

The purchase of Salt Lake City-based Questar, which has 1 million residential and commercial customers mostly in Utah, expands Dominion’s service territory and will boost revenue from delivering the fuel. Dominion joins utility owners Duke Energy Corp. and Southern buying gas companies as the growth in U.S. power demand slows.

“Top-line growth in electricity is basically nil,” Kit Konolige, an analyst for Bloomberg Intelligence, said Monday by phone. “They’re looking for a business on the gas side that’s similar to what they’re doing but, as they see it, would have better growth prospects.”

Questar rose 23 percent to close at $24.99.

“The fact that it’s trading basically at the offer price suggests that somebody is placing some odds that there could be another offer,” Konolige said. Dominion fell 2.8 percent to $70.18.

Cheap Gas

Atlanta-based Southern agreed in August to buy gas distributor AGL Resources Inc. for about $8 billion in cash, allowing it to profit from pipeline expansions as historically cheap gas and tighter air pollution rules boost the fuel’s use in power generation. Duke agreed to buy Piedmont Natural Gas Co. for about $4.9 billion in cash in October.

“These high-performing regulated assets will improve Dominion’s balance between electric and gas operations and provide enhanced scale and diversification into Questar’s regulatory jurisdictions,” Dominion’s Chief Executive Officer Thomas Farrell said in the statement.

Questar also owns about 3,400 miles (5,470 kilometers) of gas transmission pipelines and 56 billion cubic feet of gas storage that will benefit Dominion Midstream LP, the master-limited-partnership controlled by Dominion, Farrell said. Those assets generate about $425 million a year of earnings before interest, taxes, depreciation and amortization, he said.

Dominion plans to finance the purchase by selling stock, mandatory convertibles and debt at the parent, as well as by sale of units in Dominion Midstream, the pipeline partnership it controls. Questar’s pipeline assets will be sold to Dominion Midstream over two years beginning in 2017, Chief Financial Officer Mark McGettrick said on an investor call.

RBC Capital Markets LLC and Mizuho Bank Ltd. advised Dominion and have provided financing for the deal, according to the statement. Goldman Sachs Group Inc. advised Questar.