TransCanada Makes Shrewd Move To Bid For Columbia Pipeline

TransCanada Corporation (USA) TRP made a smart move by offering to buy Columbia Pipeline Partners LP CPPL for $15.75 as a competing bid is unlikely despite the offer is on the lower side.

The proposed offer is an 11.3 percent premium over Columbia's average 30-day closing price, but a modest 2.9 percent premium to Friday's closing price of $15.30.

"While a strategic review of CPPL was announced at the end of June, TRP clearly would like to take advantage of the recent churning in the MLP market and weakness in CPPL's unit price since the end of July —a shrewd move indeed," D.A. Davidson analyst Poe Fratt wrote in a note.

Units of Columbia traded above $16 this morning, an indication that a higher bid may come. But, Fratt said a higher bid seems unlikely as TransCanada owns a majority of Columbia units and the deal does not appear to require approval of a majority of non-affiliated Columbia units.

"[I]t might be a challenge to improve the offer price since CPPL unit holders have little leverage," Fratt noted.

Fratt remains Neutral rated on Columbia shares. In fact, the analyst is concerned that the change in ownership of the GP created risk for CPPL owners.

That said, the analyst pointed out that the deal is a better option versus a change in distribution, which would have hurt the yield and pressured the unit price.

To reflect the cash offer, Fratt increased the price target to $15.75 from $15.00.