TransCanada Corp.’s Keystone XL pipeline.NATHAN VANDERKLIPPE/The Globe and Mail
TransCanada Corp. stock jumped for a second successive day on speculation that U.S. activist investors are gauging interest among major shareholders for a breakup of the pipeline and power company.
TransCanada issued a statement on Friday in response to the unusual market activity, saying that maintaining its current structure is the best way to move forward with $38-billion of capital spending plans.
It said it has delivered a 16-per-cent annualized return to investors, along with steadily increasing dividends.
The stock has gained nearly 5 per cent since Wednesday on the Toronto Stock Exchange.
It was not clear on Friday how advanced the efforts are to split TransCanada into pieces. It is the country's largest transporter of natural gas and it's planning multibillion-dollar oil pipelines such as Keystone XL and Energy East. The company also has a large power generation business, which includes the Bruce nuclear facility in Ontario.
In June, Citigroup analyst Faisel Khan issued a report saying that TransCanada could add $26 a share in value in a breakup that would include separating the power business from the pipeline operations.
TransCanada has been on alert for a possible activist fight since the Citigroup report, said a person familiar with the situation. That was followed by a Barron's article that cited "speculation" that TransCanada could be an activist target, raising the possibility that an activist was testing its ideas about a breakup.
Still, running the idea by shareholders to see if it gets traction is far from a sure signal that a full-on activist move is afoot.
A TransCanada spokesman declined to comment on whether the company was aware of any big shareholders being sounded out on potential restructuring moves.
A report by Reuters on Thursday said activist investors had met with shareholders. Citing unnamed sources, the report said U.S. activist investor Daniel Loeb's Third Point had built up a position in TransCanada over the past few months. A spokeswoman at Third Point declined to comment when reached by The Globe and Mail.
"TransCanada firmly believes its current corporate form, asset base and financial strength provide critical underpinning to execute the company's industry-leading $38-billion capital program, which is expected to generate significant, sustainable growth in future cash flow, earnings and dividends," the company said.
It pointed out that its U.S. master limited partnership, TC Pipelines LP, remains a handy funding alternative for its capital spending plans, and it remains committed to "dropping down" the rest of its U.S. pipeline assets into the partnership in the coming years.
The stock is up more than 20 per cent since the end of June.
Jeffrey Jones