Kinder Morgan to Divest Canadian Assets, Hires TD Securities

Kinder Morgan Inc KMI has reportedly hired investment bank, TD Securities, for the scheduled sale of its Canadian business.

The sale, which will indicate the U.S. pipeline giant’s exit from Canada, is expected to raise about C$2.4 billion ($1.8 billion). At a conference in September, Kinder Morgan’s chief executive expressed intent in divesting the remaining Canadian business, which was initially purchased to support the Trans Mountain project. However, no details were disclosed by either of the parties.

The company divested Trans Mountain pipeline to the Canadian government for about C$4.5 billion at the end of August. In the same month, a Canadian court reversed its consent of the Trans Mountain expansion on grounds that Ottawa did not pay attention to native concerns. Recently, pipeline companies in Canada have faced face high resistance from environmental groups and First Nations groups for the consent of new projects.

Due to such constraints, the existing pipelines are highly-valued assets in the country.

In 2005, Kinder Morgan had purchased Terasen Inc, wherein it obtained the Trans Mountain pipeline and considerably expanded footprint in Canada. The remaining Canadian business of Kinder Morgan includes the Edmonton, Alberta and Vancouver Wharves terminal businesses as well as the Canadian portion of the Cochin pipeline. The unit has earnings before interest, tax, depreciation and amortization (EBITDA) of about C$200 million.

Per the sources, the assets, which will be sold individually or together, are anticipated to go for a multiple of 10 to 12 times EBITDA, taking the total value of the deal to C$2.4 billion. The offer for the business is likely to come from midstream companies, private equity firms and infrastructure funds. Kinder Morgan will retain the assets if it does not get a good price as they generate solid cash flows.

Lately, there have been companies who have exited businesses in Canada. In 2016, Williams Cos Inc WMB divested its Canadian business. In July, Enbridge Inc ENB sold its natural gas gathering and processing business in Canada to Brookfield Infrastructure Partners LP BIP and its institutional partners for about C$4.31 billion. In February, MEG Energy settled for the divestiture of various pipeline and storage assets in Alberta to Wolf Midstream Inc for C$1.61 billion.

Price Performance

In the past year, Kinder Morgan’s shares have lost 6.8% compared with the industry’s 11.5% decline.

 

Zacks Rank & Stocks to Consider

Kinder Morgan currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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