September 14, 2018, by John Tilak and David French
TORONTO/NEW YORK (Reuters) – Kinder Morgan Inc (KMI.N) has hired investment bank TD Securities (TD.TO) to facilitate a potential sale of its Canadian business, which could fetch as much as C$2.4 billion ($1.8 billion), people familiar with the situation told Reuters this week.
Should the move succeed, it would mark the exit of the U.S. pipeline giant from Canada, having closed its sale of the Trans Mountain pipeline to the Canadian government for about C$4.5 billion at the end of last month.
After the Reuters report on the hiring of the bank, shares in Kinder Morgan Canada Ltd (KML.TO), which completed its initial public offering just last year, turned positive and jumped 3.7 percent to a three-month high. They ended up 2.1 percent in a flat market. Shares in Houston-based Kinder Morgan closed down 1.3 percent.
Spokeswomen for TD and Kinder Morgan declined to comment on the hiring of the investment bank and the valuation. Sources declined to be identified as the process is private.
Pipeline companies in Canada have faced opposition from environmental groups and First Nations groups in recent times
in getting approval for new projects. Last month, a Canadian court overturned approval of the Trans Mountain expansion, saying that Ottawa failed to adequately consider aboriginal concerns.
On the flip side though, this makes established pipelines highly prized assets by those operating in the country.
At a conference earlier this month in New York, Kinder Morgan Chief Executive Steven Kean indicated his willingness to sell the rest of the Canadian business, noting that the original purpose of these assets was to support the Trans Mountain project.
Kinder Morgan bought Terasen Inc in 2005, a deal in which it acquired the Trans Mountain pipeline and dramatically broadened its footprint in Canada.
Kinder Morgan’s remaining Canadian business 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, Kean said at the time.
The assets, which could be sold separately or in one swoop, are expected to go for a multiple of 10 to 12 times EBITDA, the sources said, taking the total deal value to C$2.4 billion.
The bidding for the business is expected to come from midstream companies, private equity firms and infrastructure funds, the sources added.
Kinder Morgan would likely keep the assets if it does not get a good price as they generate solid cash flows, the sources added.
In a note following the Reuters report, RBC analyst Robert Kwan said “we would view a sale process as positive for Kinder Morgan Canada’s share price.”
In 2016, Williams Cos Inc (WMB.N), another U.S. pipeline company, sold its Canadian business.
Enbridge Inc (ENB.TO) said in July it would sell its Canadian natural gas gathering and processing business to Brookfield Infrastructure Partners LP (BIP.N) and its institutional partners for about C$4.31 billion. In February, Canadian oil sands producer MEG Energy (MEG.TO) agreed to sell some pipeline and storage assets in Alberta to Wolf Midstream Inc for C$1.61 billion.
Reporting by John Tilak in Toronto and David French in New York; Additional reporting by Jessica Resnick-Ault in New York, Rod Nickel in Winnipeg and Fergal Smith in Toronto; Editing by Marguerita Choy