A year after first setting its sights on Australia, Calgary's Atco Ltd. has finally snagged a major deal Down Under.
On Thursday, Atco said it has signed a conditional agreement to buy Western Australia Gas Networks, one of the country's major gas utilities, for $356-million (Australian). Atco will also assume $644-million in debt. The deal comes with a big price tag, but it also establishes an immediate presence in Perth, one of Australia's biggest cities.
The acquisition is the latest by companies in the Canadian power and utility sectors to expand into other markets. Atco's board of directors set out in the spring of 2010 to find Australian acquisitions to add to the company's holdings. Much like Atco, Capital Power and Fortis Inc. have also looked beyond Canada's borders, and recently picked up assets in New England.
"We will to continue to grow [in Canada] but we are really saturated, especially in Western Canada," Atco's chief executive officer Nancy Southern said in an interview. "We were looking for a market that was similar to here, so that we could replicate what we have been relatively successful doing here. Western Australia Gas Networks is the right company in the right geography."
The new asset will become a wholly owned subsidiary of Atco's Canadian Utilities Ltd.
Ms. Southern characterized the deal as a "natural progression" for Atco because Western Australia has a strong resource-driven economy, much like Alberta's, as well as the same language and Commonwealth ties.
WAGN wasn't the first company Atco considered. Ms. Southern admitted that she looked at a deal with the collapsed Australian energy company Alinta in late 2010, but ultimately decided that it carried too much risk. Alinta was bought in 2007 by a consortium including Singapore Power and is being restructured.
Atco opened a Perth office in January. Although the company has been running energy and work-force infrastructure divisions in Australia for many years, it hoped to find a utility that would provide a more stable, regular earnings base.
WAGN's assets "were right up our alley since there were actual pipes in the ground and we're really familiar with that business," Ms. Southern said. "It was a difficult deal to put together, because it was very fragmented and getting all the players aligned took a lot of effort. But we are very happy with the deal we have, with 100 per cent of the assets of WAGN."
Because Atco had already announced its intentions, Bay Street wasn't caught off-guard by the announcement.
"Over all, our initial thought is that the transaction is neutral to Canadian Utilities' share price, pending additional details from management," RBC Dominion Securities analyst Robert Kwan wrote in a research note. "The announcement does not come as a surprise, given the formation of an Australian subsidiary earlier in the year, and the valuation, although not cheap, does not seem unreasonable."
Atco will pick up a 74.1-per-cent interest in WAGN from WestNet Infrastructure Group and the remaining 25.9-per-cent interest from DUET Group.
In a related deal, DUET said it had struck agreements to increase its holding in the Dampier-to-Bunbury natural gas pipeline to 80 per cent from 60 per cent. The transactions flow from the collapse of Alinta, which has led to a series of asset sales and refinancing transactions.