TransCanada Offers $848 Million to Buy Out Columbia Unit

  • MLP units rise above offer price in New York trading
  • Offer subject to approval by partnership unit holders

TransCanada Corp. offered to buy all outstanding units of Columbia Pipeline Partners LP for about $848 million in cash, a move that may finally decide the partnership’s fate after TransCanada’s $10.2 billion takeover of the company that controlled it.

TransCanada is offering $15.75 for each of the outstanding units of Columbia Pipeline Partners, it said Monday in a statement. The offer represents a 2.9 percent premium to Friday’s closing price. The company closed at $16.05 in New York, indicating that the market expects TransCanada will have to sweeten the deal to win approval by unit holders.

“We are disappointed with the offer price and await” Columbia Pipeline’s board review, Jefferies LLC analysts including Christopher Sighinolfi said in a research note Monday. Before TransCanada disclosed its plans for the partnership, “we remained encouraged by CPPL’s competitive cost of capital,” its rights to make offers on future Columbia divestitures and its growth from expansions, they said.

Investors had been punishing Columbia Pipeline Partners’ units since March when TransCanada announced it was buying the company that controlled it, Columbia Pipeline Group Inc. The partnership plunged to as low as $13.01 amid uncertainty over its future. Jefferies warned in its note on Monday that the potential acquisition of a controlling partner is “a risk inherent to all” master-limited partnerships. 

‘No Clear Strategy’

At the time that TransCanada announced the Columbia Pipeline Group takeover, “there was no clear strategy for Columbia Pipeline Partners,” Bloomberg Intelligence analyst Michael Kay said by phone Monday. “It was clear that TransCanada set itself up to do something with the MLP at a discounted price.”

Related: The Columbia Pipeline That’s Not Rallying on TransCanada Buyout

The deal announced Monday is subject to approval by directors of the partnership, Columbia Pipeline Group and TransCanada as well as a majority of the partnership’s unit holders, according to the statement. It also requires U.S. antitrust approval.

“They’re trying to streamline their balance sheet,” Skip Aylesworth, who manages the Hennessy Gas Utility Fund from Boston, said Monday by phone. “They don’t need multiple MLPs.”

TransCanada hired Morgan Stanley as its financial adviser and Vinson & Elkins as legal adviser.

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