Enbridge Announces Strategic Acquisition of Three U.S. Based Utilities to Create Largest Natural Gas Utility Franchise in North America
- The acquisitions will create North America's largest natural gas utility platform, delivering ~9.3 bcf/d to ~7 million customers.
- The deal is expected to be accretive to distributable cash flow per share and adjusted earnings per share in the first full year of ownership.
- Enbridge's financial guidance in 2023 and its near-term and medium-term outlook are maintained.
- The acquisitions are expected to increase Enbridge's long-term dividend growth profile.
- Enbridge's gas utility business will be the largest in North America with a combined rate base of over CDN$27 billion.
- None.
HIGHLIGHTS:
- Enbridge has entered into definitive agreements with Dominion Energy, Inc. to acquire The East Ohio Gas Company ("EOG"), Questar Gas Company ("Questar Gas"), and its related Wexpro companies ("Wexpro" and collectively with Questar Gas, "Questar"), and Public Service Company of
North Carolina , Incorporated ("PSNC") (collectively the "Gas utilities") for an aggregate purchase price of US$14.0 billion (CDN 1), comprised of$19 billion US of cash consideration and$9.4 billion US of assumed debt (the "Acquisitions").$4.6 billion - Creates
North America 's largest natural gas utility platform delivering ~9.3 bcf/d to ~7 million customers across multiple regulatory jurisdictions. - Historically attractive acquisition multiples, based on 2024 estimate of ~1.3x Enterprise Value-to-Rate Base and 2023 estimate of ~16.5x Price-to-Earnings.
- Compounded annual growth rate of approximately
8% on the consolidated rate base is expected to deliver long-term value for Enbridge shareholders. - Expected to be accretive to distributable cash flow per share ("DCFPS") and adjusted earnings per share ("EPS") in the first full year of ownership, increasing over time driven by the addition of approximately
CDN of annual, low-risk, quick-cycle rate base investments to Enbridge's secured growth backlog.$1.7 billion - Financial guidance in 2023, and near-term and medium-term outlook is maintained; long-term dividend growth profile is strengthened.
- High-quality, utility cash flows from the Gas utilities further reduces Enbridge's already industry leading business risk and balances Enbridge's earnings mix to approximately
50% Natural Gas and Renewables and50% Liquids upon closing, expected in 2024. - Funding plan preserves financial flexibility as Enbridge expects to maintain leverage within its target range of 4.5x to 5.0x Debt-to-Adjusted EBITDA.
- Enbridge is looking forward to welcoming the Gas utilities' employees to the Enbridge family and expects to maintain strong relationships with existing local unions and communities.
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1 Translated at USD/CAD |
Upon the closings of the three transactions, Enbridge will add gas utility operations in
Following the closings of the Acquisitions, Enbridge's gas utility business will be the largest, by volume, in
The Company estimates its purchase price for the Acquisitions at ~1.3x Enterprise Value-to-Rate Base (based on 2024 estimates) and ~16.5x Price-to-Earnings (based on 2023 estimates) and expects the Acquisitions to be accretive to Enbridge's financial DCFPS and adjusted EPS outlook in the first full year of ownership adding shareholder value.
"Adding natural gas utilities of this scale and quality, at a historically attractive multiple, is a once in a generation opportunity. The transaction is expected to be accretive to DCFPS and adjusted EPS in the first full year of ownership, increasing over time due to the strong growth profile," said Greg Ebel, Enbridge President and CEO. "Following the closings of the Acquisitions, our Gas Distribution and Storage ("GDS") business will be
"The assets we are acquiring have long useful lives and natural gas utilities are 'must-have' infrastructure for providing safe, reliable and affordable energy. In addition, these gas utilities have each committed to achieving net-zero greenhouse gas emissions by 2050 and are expected to play a critical role in enabling a sustainable energy transition. We are very excited by today's announcement as these businesses align with Enbridge's business risk model and long-term growth targets. The entire Enbridge team is committed to working with the EOG, Questar and PSNC teams and to investing in the communities they serve. We look forward to serving our customers with dedication and to providing them with safe, reliable, and affordable energy service for years to come."
The Gas utilities are domiciled in premier
Each of the Gas utilities have an excellent operating and safety track record. The experienced operating teams of each business will be joining the Enbridge team. Keeping with Enbridge's history of successfully integrating acquired businesses, we expect to be able to integrate the Gas utilities' businesses smoothly while continuing to deliver the service our customers expect.
"Today and for the long-term, natural gas will remain essential for achieving
COMMITMENT TO EOG, PSNC AND QUESTAR COMMUNITIES, CUSTOMERS, AND EMPLOYEES
Following the closings of the Acquisitions, EOG, PSNC and Questar each will continue to be regulated by the Public Utility Commission of
Enbridge's existing natural gas utility has proudly served its customers for 175 years and has built its business on the key pillars of safety, reliability, affordability and customer service. Enbridge actively invests in the communities it serves and looks forward to continuing the community service legacies of EOG, PSNC and Questar in their respective states. In addition, Enbridge offers a competitive and flexible Total Compensation package to its staff and seeks to maintain strong relationships with local unions and the local workforce.
FINANCIAL CONSIDERATIONS
Today's equity offering, announced separately, is expected to fully address the Company's planned discrete common equity issuance needs to finance this transaction. It ensures the remaining funding requirements can be readily satisfied through a variety of alternate sources including hybrid debt securities and senior unsecured notes, continuing the Company's ongoing capital recycling program, potential reinstatement of Enbridge's Dividend Reinvestment and Share Purchase Plan, or At-The-Market equity issuances. The acquisition of each Gas utility is expected to close in 2024, upon receipt of the applicable required federal and state regulatory approvals, which allows Enbridge flexibility to optimally balance the mix of financing alternatives prior to each closing. These sources may change, subject to market conditions and other factors.
Enbridge has obtained debt financing commitments totaling
The Company is committed to maintaining its financial strength. The funding program for the Acquisitions is designed to maintain the Company's balance sheet within its previously communicated target leverage range of 4.5x to 5.0x Debt-to-Adjusted EBITDA with the objective of retaining its strong investment grade credit ratings.
"Acquiring these natural gas utilities makes strong strategic and financial sense. Enbridge is currently the only major pipeline and midstream company that owns a regulated gas utility and we've further strengthened that position today by doubling the size of our GDS business. After closings, the Acquisitions will extend and diversify our natural gas footprint and importantly add low-risk, ratable investments to our growth portfolio" said Patrick Murray, Executive Vice President and Chief Financial Officer, Enbridge. "The financing plan for the transaction includes significant equity pre-funding and a suite of financing options that will be optimized to maximize accretion and protect our strong investment grade ratings."
FINANCIAL OUTLOOK
The Company reaffirms its 2023 financial guidance, while planning to raise a significant portion of the financing required for the Acquisitions this year. After the closings, the Acquisitions are expected to provide immediate high-quality cash flow and deliver significant EBITDA growth in their first full fiscal year of Enbridge's ownership. The Gas utilities have attractive embedded DCF and earnings growth, strengthening Enbridge's near-term and medium-term financial outlook. Sustainably returning capital to shareholders remains a key priority and Enbridge plans to continue to grow its dividend up to its level of medium-term distributable cash flow growth.
Collectively, the Company expects the Gas utilities to add
TIMING AND APPROVALS
The Acquisitions are expected to close in 2024, subject to the satisfaction of customary closing conditions, including the receipt of certain required
ADVISORS
Morgan Stanley & Co. LLC and RBC Capital Markets acted as co-lead Financial Advisors. Sullivan & Cromwell LLP and McCarthy Tétrault LLP were legal advisors to Enbridge.
CONFERENCE CALL DETAILS
Enbridge will host a conference call on September 5, 2023, at 4:30 p.m. Eastern Time (2:30 p.m. Mountain Time) to provide an overview of the Acquisitions. Analysts, members of the media and other interested parties can access the call toll free at 1-800-606-3040 (conference ID: 9581867). The call will be webcast live, please register at https://app.webinar.net/2vM5REDQKoe. A webcast replay will be available soon after the conclusion of the event and a transcript will be posted to the website.
The webcast will include prepared remarks from the executive team. Enbridge's media and investor relations teams will be available after the call for any additional questions.
FORWARD-LOOKING INFORMATION
This news release contains both historical and forward-looking statements within the meaning of Section 27A of the
Although the Company believes these forward-looking statements are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties and other factors, which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Material assumptions include assumptions about the following: the expected supply of, demand for, export of and prices of crude oil, natural gas, NGL, LNG and renewable energy; energy transition, including the drivers and pace thereof; anticipated utilization of assets; exchange rates; inflation; interest rates; availability and price of labor and construction materials; the stability of the Company's supply chain; operational reliability; maintenance of support and regulatory approvals for the Company's projects; anticipated in-service dates; weather; the timing, terms and closing of acquisitions and dispositions, including the Acquisitions, and of the financing of the Acquisitions; the realization of anticipated benefits of transactions, including the Acquisitions; governmental legislation; litigation; estimated future dividends and impact of the Company's dividend policy on its future cash flows; the Company's credit ratings; capital project funding; hedging program; expected EBITDA and Adjusted EBITDA; expected earnings/(loss) and adjusted earnings/(loss); expected future cash flows; expected future EPS; expected DCF and DCF per share; debt and equity market conditions; and the ability of management to execute key priorities, including with respect to the Acquisitions. Assumptions regarding the expected supply of and demand for crude oil, natural gas, NGL, LNG and renewable energy, and the prices of these commodities, are material to and underlie all forward-looking statements, as they may impact current and future levels of demand for the Company's services. Similarly, exchange rates, inflation and interest rates impact the economies and business environments in which the Company operates and may impact levels of demand for the Company's services and cost of inputs, and are therefore inherent in all forward-looking statements. The most relevant assumptions associated with forward-looking statements regarding announced projects and projects under construction, including estimated completion dates and expected capital expenditures, include the following: the availability and price of labor and construction materials; the stability of our supply chain; the effects of inflation and foreign exchange rates on labor and material costs; the effects of interest rates on borrowing costs; and the impact of weather and customer, government, court and regulatory approvals on construction and in-service schedules and cost recovery regimes.
The Company's forward-looking statements are subject to risks and uncertainties pertaining to the successful execution of the Company's strategic priorities, operating performance, legislative and regulatory parameters; litigation; acquisitions (including the Acquisitions), dispositions and other transactions and the realization of anticipated benefits therefrom; the financing of the Acquisitions; operational dependence on third parties; dividend policy; project approval and support; renewals of rights-of-way; weather; economic and competitive conditions; public opinion; changes in tax laws and tax rates; exchange rates; inflation; interest rates; commodity prices; access to and cost of capital; political decisions; global geopolitical conditions; and the supply of, demand for and prices of commodities and other alternative energy, including but not limited to those risks and uncertainties discussed in our filings with Canadian and
Financial outlook and future oriented financial information contained in this news release about prospective financial performance, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available and is subject to the same risk factors, limitations and qualifications as set forth above. The financial information included in this news release, has been prepared by, and is the responsibility of, management . The purpose of the financial outlook and future oriented financial information provided in this news release is to assist readers in understanding the Company's expected financial results following completion of the Acquisitions and the associated financings, and may not be appropriate for other purposes. The Company and its management believe that such financial information has been prepared on a reasonable basis, reflecting the best estimates and judgments, and that prospective financial information represents, to the best of management's knowledge and opinion, the Company's expected course of action. However, because this prospective information is highly subjective, it should not be relied on as necessarily indicative of past or future results, as the actual results may differ materially from those set forth in this news release.
Except to the extent required by applicable law, the Company assumes no obligation to publicly update or revise any forward-looking statement made in this news release or otherwise, whether as a result of new information, future events or otherwise. All forward-looking statements, whether written or oral, attributable to the Company or persons acting on the Company's behalf, are expressly qualified in their entirety by these cautionary statements.
NON-GAAP MEASURES
This news release makes reference to non-GAAP and other financial measures, including earnings before interest, income taxes, depreciation and amortization (EBITDA), adjusted EBITDA, distributable cash flow (DCF), adjusted earnings per share (EPS) and DCF per share and debt to adjusted EBITDA. Management believes the presentation of these metrics gives useful information to investors and shareholders as they provide increased transparency and insight into the performance of the Company. Adjusted EBITDA represents EBITDA adjusted for unusual, infrequent or other non-operating factors on both a consolidated and segmented basis. Management uses EBITDA and adjusted EBITDA to set targets and to assess the performance of the Company and its business units. Adjusted earnings represent earnings attributable to common shareholders adjusted for unusual, infrequent or other non-operating factors included in adjusted EBITDA, as well as adjustments for unusual, infrequent or other non-operating factors in respect of depreciation and amortization expense, interest expense, income taxes and non-controlling interests on a consolidated basis. Management uses adjusted earnings as another measure of the Company's ability to generate earnings and EPS to assess the performance of the company. DCF is defined as cash flow provided by operating activities before the impact of changes in operating assets and liabilities (including changes in environmental liabilities) less distributions to non-controlling interests, preference share dividends and maintenance capital expenditures, and further adjusted for unusual, infrequent or other non-operating factors. Management also uses DCF to assess the performance of the Company and to set its dividend payout target. Debt to adjusted EBITDA is used as a liquidity measure to indicate the amount of adjusted earnings available to pay debt (as calculated on a GAAP basis) before covering interest, tax, depreciation and amortization.
Reconciliations of forward-looking non-GAAP and other financial measures to comparable GAAP measures are not available due to the challenges and impracticability of estimating certain items, particularly certain contingent liabilities and non-cash unrealized derivative fair value losses and gains which are subject to market variability. Because of those challenges, reconciliations of forward-looking non-GAAP and other financial measures are not available without unreasonable effort.
The non-GAAP measures described above are not measures that have standardized meaning prescribed by generally accepted accounting principles in
Unless otherwise specified, all dollar amounts in this news release are expressed in Canadian dollars, all references to "CDN," "dollars" or "$" are to Canadian dollars and all references to "US$" are to US dollars.
ABOUT ENBRIDGE INC.
At Enbridge, we safely connect millions of people to the energy they rely on every day, fueling quality of life through our North American natural gas, oil or renewable power networks and our growing European offshore wind portfolio. We're investing in modern energy delivery infrastructure to sustain access to secure, affordable energy and building on two decades of experience in renewable energy to advance new technologies including wind and solar power, hydrogen, renewable natural gas and carbon capture and storage. We're committed to reducing the carbon footprint of the energy we deliver, and to achieving net zero greenhouse gas emissions by 2050. Headquartered in Calgary,
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SOURCE Enbridge Inc.
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