NiSource Inc., the owner of natural gas pipelines and utilities in the upper U.S. Midwest, is a prime acquisition candidate for companies seeking to profit from the shale-gas boom.
NiSource shares surged to an all-time high last week amid takeover speculation fueled by a December report that Dominion Resources Inc. was raising money for a purchase. An all-cash deal for NiSource would give Dominion complementary gas assets and boost its earnings, even if it paid a 20 percent premium to NiSource’s closing price Jan. 17 of $33.89, according to Sanford C. Bernstein & Co.
Utility owners are looking to boost returns by expanding in shale-gas markets. NiSource, owner of pipelines and storage systems serving producers in the gas-rich Marcellus and Utica formations, is projected by analysts to post record operating profit this year, according to data compiled by Bloomberg. If Dominion isn’t interested in the $10.6 billion company, a deal might make sense for Canadian pipeline owners Enbridge Inc. and TransCanada Corp., because they’re eager to collect fees for processing and transporting U.S. shale gas, KeyCorp said.
“NiSource has attractive assets, there is no denying that,” Paul Ridzon, a Cleveland-based analyst at KeyBanc Capital Markets, a unit of KeyCorp, said in a phone interview. “If you are a utility who wanted some shale exposure, you could get an expanded utility platform and a very nice shale platform.”
Mike Banas, a spokesman for NiSource, said the Merrillville, Ind., company doesn’t comment on speculation, when asked whether it’s been approached by buyers or is considering a sale.
Ryan Frazier, a spokesman for Richmond, Va.-based Dominion, also said the company declined to comment on speculation, as did Shawn Howard, a spokesman for TransCanada in Calgary, and Graham White of Enbridge.
Shale refers to the dense rock formations deep within the ground that producers drill through to extract trapped oil and gas. The shale is cracked open with a powerful injection of a mixture of water, sand and chemicals. Pipelines, such as NiSource’s, transport the recovered fuel.
NiSource’s Columbia Pipeline Group operates about 15,700 miles of lines that stretch from Louisiana to New York. NiSource also owns gas utilities that serve 3.3 million customers in seven states.
NiSource was among the stocks that rallied Dec. 20 after Mergermarket, citing unidentified people, said that Dominion is in “advanced stages” of raising more than $10 billion in debt to buy a publicly traded Midwest utility company. Mergermarket didn’t name NiSource as a target.
When asked at the time about the story, Frazier said Dominion is “committed to and focused on executing our diverse, long-term regulated infrastructure growth plan.”