Canadian M&A action continues to set torrid pace

May 22, 2000
Canada's merger and acquisition frenzy continues unabated.

Canada's merger and acquisition frenzy continues unabated.

Two Calgary independents are at the center of major acquisitions.

Of two major deals pending in the service-supply sector, one has collapsed and another offers emergency aid to a financially troubled engineering and construction firm.

An Atlantic local gas distribution company plans to buy a Virginia LDC, making it the second-biggest pure-gas LDC in the US.

Meanwhile, GRI (formerly Gas Research Institute) and the Institute of Gas Technology have approved a proposed merger of the two groups (OGJ, Apr. 24, 2000, Newsletter). The merged entity plans to create a new board of directors from all sectors of the gas industry, plus consumers.

The organization, which has not yet been named, will likely be located in IGT's headquarters in Des Plaines, Ill.

Hunt-Newport

Hunt Oil Co., Dallas., has agreed to acquire Newport Petroleum Corp., Calgary, in a stock purchase valued at $760 million (Can.), including $271 million in debt. The deal gives Hunt Oil a platform to expand its scope of operations in Canada, said Ray L. Hunt, chairman and CEO of Hunt.

Terms of the agreement call for Hunt Oil to offer $5.50/share in cash for all the issued and outstanding common shares of Newport. The offer represents a 10% premium over Newport's May 12 closing share price of $5/share on the Toronto Stock Exchange.

The offer has the unanimous support of Newport's board of directors, and Newport's senior officers and directors have agreed to tender their common shares to the Hunt offer.

The deal is set to close when at least two thirds of Newport's common shares are tendered and all necessary regulatory approvals are given. The agreement also provides that Newport will pay Hunt a noncompletion fee of $25 million under certain circumstances.

AEC deals

Alberta Energy Co. Ltd., Calgary, reported two major acquisitions expanding its North American portfolio.

AEC Oil & Gas (USA) Inc. will acquire the common shares of McMurry Oil Co. and other private interests. The acquisition will give AEC 1.2 tcf of proven and probable natural gas reserves in exchange for $910 million (Can.) cash. This will raise AEC's gas reserves total to 5.4 tcf, making AEC's gas reserve holdings the largest in Canada and third largest among independent producers in North America, the company said.

The deal is expected to provide immediate and long-term growth in AEC's cash flow and earnings. Cash flow is anticipated to rise $0.45/share for the rest of 2000 and $1.00/share in 2001 as a result of the acquisition.

The purchase will establish a new platform for growth for AEC in the northern US Rockies-a strategic focus area for the company-allowing it to explore for more large fields from AEC's new Denver-based business unit, said Gwyn Morgan, AEC president and CEO. As gas demand strengthens in the US, the Rockies region is expected to be at the forefront of supply development, as producers begin looking for additional US gas resources.

The companies being acquired hold a major interest in southwestern Wyoming's Jonah field, one of the largest gas fields in the US Rockies. Discovered in 1993, Jonah is a 1 tcf gas field producing sweet gas. The Jonah reservoir consists of deep, low-permeability, high-pressure gas trapped in over 3,000 ft of multizone sands. Total operated working interest gas production from Jonah is 140 MMcfd.

The field is "ideally situated" near the Opal gas hub, Morgan said, facilitating ready market access. Through continued development, Jonah output is expected to reach 180 MMcfd in 2001 and 220 MMcfd in 2002.

About 58% of AEC's production base for 2000 will consist of North American gas. The deal will raise AEC's pro forma gas sales in 2000 to about 1.08 bcfd, up 19% from 1999 levels. AEC also has offered to buy an additional 6% working interest in Jonah field from other owners.

Meanwhile, AEC's Midstream division has agreed to purchase 92.5% of Green River Pipeline LLC, which owns Jonah Gas Gathering Co., for $240 million (Can.) and has offered to buy the remaining 7.5% interest. The pipeline is expected to contribute about $45 million (Can.) of annual operating cash flow in 2001.

The system consists of 245 miles of pipeline infrastructure, which connects to major interstate markets at Opal, the western Wyoming hub. The Jonah system currently transports 320 MMcfd under contract to 14 producers in the region. Expansions under way will increase capacity to 440 MMcfd.

The deal will take effect June 1, pending regulatory approval. Most of McMurry's current employees will likely be offered employment with AEC Oil & Gas, AEC said.

BOC megadeal fizzles

Air Products & Chemicals Inc., Allentown, Pa., and French industrial gases company Air Liquide SA have decided to let their $11.6 billion cash bid for UK-based BOC Group PLC expire.

The two firms said they were unable to win regulatory approval for the acquisition, despite the fact that they had made several proposals to the US Federal Trade Commission during the 10 months of negotiations, including suggesting the divestiture of BOC's US gas businesses. Both companies said last July that they would buy rival BOC, with the intent of splitting BOC's assets between them. Air Liquide is the world's largest producer of industrial gases. BOC holds the No. 2 spot, and Air Products is fourth. BOC Group is headquartered in Windlesham, England.

Bankruptcy follow-through

Jacobs Engineering Group Inc., Pasadena, Calif., and Stone & Webster Inc., Boston, have signed a letter of intent for Jacobs to acquire Stone & Webster's assets and contracts. Terms of the agreement call for Jacobs to pay $150 million in cash and stock and assume specified liabilities related to Stone & Webster's ongoing business. Jacobs also has agreed to advance up to $50 million in working capital funds to Stone & Webster under a secured revolving credit agreement. The news comes after Stone & Webster revealed it will file petition for reorganization under Chapter 11 of the US Bankruptcy Code.

Stone & Webster and Jacobs had annual revenues as of Mar. 31 of $1.3 billion and $3.2 billion, respectively.

LDCs deal

AGL Resources Inc. (AGL), Atlanta, is acquiring Virginia Natural Gas (VNG), a wholly owned subsidiary of Richmond, Va.-based Dominion Resources Inc., for $500 million cash. AGL says the deal will boost its customer base to nearly 1.8 million, making it the second largest natural gas-only distributor in the US.

The purchase agreement is subject to regulatory approval, but AGL anticipates the transaction will be complete by yearend.

Earlier this year, the Virginia State Corporation Commission and the US Federal Trade Commission required Dominion to divest its ownership of VNG as part of Dominion's planned merger with Consolidated Natural Gas Co.

Terms of the divestiture agreement call for AGL to acquire all of VNG's outstanding stock, making it a wholly owned subsidiary. The transaction also would establish AGL in one of the fastest-growing US gas markets.

The company said its acquisition of VNG would not affect its previously announced share repurchase program. AGL has already bought back 3 million of the 3.6 million shares currently authorized for repurchase. It had 54 million shares outstanding as of Mar. 31.