Months after first putting the assets on the market, Veresen Inc. (TSX:VSN) has agreed to sell its power generation division to three separate buyers. The total price will total $1.18 billion.
Veresen owned a total of 12 power plants, located in B.C., Alberta, Saskatchewan, New Brunswick, and Ontario, which collectively produced a total of 625 megawatts. The deals are expected to close sometime in the second quarter and the Calgary-based company didn’t disclose the identity of the buyers.
The transaction is expected to free up cash for management to reallocate to growth projects, as well as paying off debt. Some investors have been concerned about Veresen’s debt, which stood at five times EBITDA. The power assets attracted a valuation of 12.8 times EBITDA.
The more interesting part of the deal was how Veresen’s management team justified the sale. President and CEO Don Althoff told analysts in a conference call "We just do not believe [power generation] will offer the growth and returns to compete with the rest of our business." In other words, the power generation business is getting crowded.
Althoff went on to add that Veresen sees a far bigger competitive advantage in both its midstream and pipeline division. The company will focus its attention on those two divisions instead.
This deal comes to no surprise to investors. Veresen’s management first suggested the power assets were on the market back in 2016.
Veresen shares took the news in stride, staying flat in early afternoon trading on the Toronto Stock Exchange, staying at $14.05 per share. That’s very close to the company’s 52-week high.
