Energy Infrastructure Company AtlasGas Closes 'Transformational' Acquisition

An iASecurities report discussed the benefits of the merger and next steps for the acquirer.

A July 9 iA Securities research note indicated that AltaGas Ltd (TO:ALA) closed its CA$9 billion deal with WGL Holdings (NYSE:WGL) and iA Securities raised its per share target price on Buy rated AltaGas to CA$30 from CA$29. The current share price is about CA$28.19. "This highly anticipated transaction is material as it essentially doubles the company's enterprise value and provides investors with additional exposure to power, utilities and midstream assets in the United States," wrote analyst Elias Foscolos.

Per the acquisition agreement, AltaGas issued CA$2.5 billion in equity, Foscolos explained. It did so through conversion of outstanding installment receipts into 80 million shares and through a bridge loan of CA$2.3 billion.

The company intends to reduce the bridge financing by issuing about CA$0.98 billion of hybrid/preferred securities and by divesting about CA$1.4 billion in assets. The sale of assets and the hybrid financing are the next catalysts for the company, the announcement of which "we believe equity investors will be eagerly anticipating," Foscolos commented.

With the closing of the WGL transaction, AltaGas "is a transformed company," Foscolos noted and explained why.

One, it becomes a more U.S.-focused, lower-risk company with an estimated 70%-plus of EBITDA to originate in the States. Only 10–15% of 2019 EBITDA will be exposed to short-term commodity prices. Medium- and long-term agreements will support about 80% of AltaGas' 2019 EBITDA.

Two, the merger provides the company with a large project pipeline. By incorporating WGL's midstream franchise in the Marcellus/Utica Basin, AltaGas will boost its CA$2 billion of internal growth capital projects to CA$5.8 billion.

Three, the transaction increases AltaGas' common equity valuation by roughly CA$2.2 billion, thereby increasing its market cap, too.

Also noteworthy, Foscolos said, is that adjusted funds from operations are expected to grow by about 10% through 2020, which could support a larger dividend. In fact, AltaGas is targeting an 8–10% dividend increase.

Moving forward, AltaGas "still needs to execute on a number of fronts," Foscolos indicated. It must integrate WGL into its company. It must divest of CA$1.4 billion of assets, which "could be more challenging." If it cannot do this, it plans to make up any difference by issuing debt. Lastly, the company must close the CA$0.98 billion hybrid financing.

Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.

3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.