Altagas Ltd. (TSX:ALA) recently made headlines when it agreed to spend $8.4 billion -- which includes $2.4 billion of assumed debt -- to acquire WGL Holdings, Inc. (NYSE:WGL).
It’s a big deal for the Calgary-based company, which only has a $5.2 billion market cap. It plans to pay for the deal by borrowing $6.6 billion from a number of commercial banks, which will be offset by issuing $2.5 billion in new shares. The company also announced it will issue $200 million in new preferred shares.
One thing investors are worried about is if there’s many more shares, Altagas’s generous 6.7% dividend may be in danger.
Management doesn’t agree with those concerns. When they announced the deal, management said they expect the deal to help grow earnings per share by 8-10% annually with funds from operations per share increasing by up to 20% annually through 2021.
Both Altagas and WGL have some ambitious growth projects plans, with a total of $7.3 billion planned to be spent over the medium-term. These new projects should also help grow the bottom line.
Altagas’s management has done a nice job growing the company’s dividend from 2010 to 2016, increasing the payout from $1.32 per share to $2.10 per share on an annual basis, good enough for 8% annual growth. Management is confident such growth can continue to 2021 if the acquisition goes through.
One thing is for sure. Investors have a lot of time to think things over, with regulatory approval for the acquisition not expected until sometime in 2018.
