Dominion Energy Inc. on Sept. 5 announced a deal valued at $14 billion to sell three natural gas utilities to Enbridge Inc., marking a major step in the Richmond, Va.-headquartered multi-utility's ongoing business review.
Dominion will divest The East Ohio Gas Co., Public Service Co. of North Carolina Inc. and Questar Gas Co., which distributes gas in Utah, Wyoming and Idaho, the company said in a Sept. 5 press release. Calgary, Alberta-based Enbridge will also take ownership of Wexpro Co., which develops and produces gas reserves.
The deal, structured as three separate definitive agreements, will create "North America's largest natural gas utility platform" by volume, delivering about 9.3 Bcf per day, Enbridge said in a separate Sept. 5 press release. The company, best known as an oil and natural gas pipeline operator, also distributes gas to 3.9 million utility connections in Ontario and Quebec.
The Dominion gas utilities serve 3 million residences and businesses through 78,000 miles of distribution, transmission, gathering and storage pipelines. The assets also include 62 Bcf of working underground and liquefied gas storage capacity, as well as 400 Bcf equivalent of regulated gas reserves as of the end of 2022.
Dominion valued the aggregate deal at about 1.5x the utility companies' estimated 2022 year-end rate base of $9.2 billion. The deal illustrated a cooling of the gas utility market from recent years, when a number of assets sold for two or more times the rate base.
"Adding natural gas utilities of this scale and quality, at a historically attractive multiple, is a once-in-a-generation opportunity," Enbridge President and CEO Greg Ebel said in the press release.
Deal to transform companies
Enbridge placed the deal's enterprise value at about 1.3x the three utility companies' estimated 2024 rate base. Enbridge agreed to pay an aggregate purchase price of $9.4 billion in cash and assume $4.6 billion in debt.
The transaction would rebalance Enbridge's business mix to 50% natural gas and renewables and 50% liquids, the company said. After closing, the company's gas utilities business would account for 22% of total adjusted EBITDA, it said.
Dominion said it would use after-tax proceeds of $8.7 billion to reduce parent-company debt and for the conveyance of $4.6 billion of operating company debt.
Dominion said it now expects to complete its business review and hold an investor event to review its strategy in the fourth quarter. It said it will reclassify the assets as discontinued operations and revise its third-quarter earnings guidance downward.
"The transactions announcement also represents another significant step in our business review, which is focused on repositioning the company to create maximum long-term value for shareholders, employees, customers and other stakeholders," Dominion Energy Chair, President and CEO Robert Blue said. Dominion's remaining business is regulated electric utilities serving about 3.5 million customers in Virginia, North Carolina and South Carolina.
On Sept. 1, Dominion completed the sale of its 50% limited partnership stake in Cove Point LNG LP to a unit of Berkshire Hathaway Energy, receiving $3.3 billion in cash.
Approvals and financing
The parties expect the deal to close in 2024, subject to several regulatory approvals. The deal will require approval under the Hart-Scott-Rodino Act and from the Federal Communications Commission and Committee on Foreign Investment in the United States, according to Dominion. The deal will additionally require approval from state utility regulators in Idaho, North Carolina, Ohio, Utah and Wyoming, the company said.
Enbridge will fund the purchase with $9.4 billion in debt financing commitments from Morgan Stanley and the Royal Bank of Canada. It separately announced an agreement with underwriters led by RBC Capital Markets and Morgan Stanley to sell nearly 89.5 million common shares to the syndicate on a bought-deal basis totaling C$4 billion, or C$44.70 per share.
Enbridge said it expects the offering to fully address common equity needs to finance the transaction. It anticipated satisfying remaining financing needs through alternative sources such as hybrid debt securities and senior unsecured notes.
Dominion received legal counsel from McGuireWoods LLP and financial advice from Citi and Goldman Sachs & Co. LLC. Morgan Stanley & Co. LLC and RBC Capital Markets were the financial advisers for Enbridge, while Sullivan & Cromwell LLP and McCarthy Tétrault LLP acted as legal advisers.
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