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A (Potential) Multi-Billion Dollar Deal Got Leaked

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What's going on?

TransCanada, the big Canadian pipeline operator behind the challenged Keystone Pipeline project, is reportedly in talks to buy US competitor Columbia Pipeline Group (according to a report from the Wall Street Journal).

What does this mean?

Right now, this is just a press report; negotiations could easily break down. The market is taking it pretty seriously though, with Columbia’s stock gaining more than 15% on the news and TransCanada’s selling off by about 4% (it’s not unusual for the potential acquirer’s stock to drop, as they would be paying quite a bit of money and taking on the risk of making the deal a success). According to the report, the deal could be worth more than $10 billion.

Why should I care?

The bigger picture: This is “consolidation” happening. You might remember us previously blabbing on about how companies in struggling industries often merge or buy one another. The idea is that strong companies take advantage of market weakness to buy other companies on the cheap. Well, Columbia’s stock has dropped more than 30% since it became an independent entity last year (it used to be part of NiSource). TransCanada, which is far larger, is likely trying to buy Columbia at what it thinks will be a great price in the long-term.

For markets: Dealmaking is typically good for stock prices. If investors think that this deal (if it happens) will lead to other deals in the sector, then they are more likely to want to own the stock of companies that could get acquired. And that tends to help support stock prices.

Originally posted as part of the Finimize daily email.

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