TC Energy splitting into two separate companies

Key Takeaways:

• The plan calls for creating a separate, spinoff business that focuses on pipelines.
• TC Energy will focus on natural gas infrastructure and expand its power and energy solutions business.
• The deal expected to be finalized on a tax-free basis during the latter half of 2024, after shareholder and court approvals.

The Whole Story:

TC Energy plans to separate into two distinct, publicly listed companies, both investment-grade entities, through the spinoff of TC Energy’s liquids pipelines business. This decision follows a two-year strategic review and is expected to be finalized on a tax-free basis during the latter half of 2024.

The company explained that the primary objective of the strategic spinoff is to unlock shareholder value and enable each newly-formed company to focus on its growth objectives while maintaining disciplined capital allocation, efficiency enhancement and operational excellence. TC Energy stated that by becoming independent entities, these new firms will be better equipped to pursue specific opportunities, ultimately benefiting their shareholders, customers, and the communities they serve.

Following the completion of the spinoff, TC Energy will emerge as a diversified, natural gas and energy solutions company. The new entity will be uniquely positioned to address the increasing demand for reliable, lower-carbon energy by leveraging its complementary business sets.

On the other hand, the liquids pipelines company will be established as a critical infrastructure entity with strategically positioned assets that connect supply routes to high-demand markets. The company aims to drive incremental growth and value creation opportunities in this space.

“This transformative announcement sets us up to deliver superior shareholder value for the next decade and beyond,” said François Poirier, president and CEO of TC Energy. “Fundamentals have always driven our strategic direction, and as a result, we have grown into a premier energy company with incumbency across a wide range of energy infrastructure platforms. As we have become the partner of choice for a magnitude of accretive, high-quality opportunities, we have determined that as two separate companies we can better execute on these distinct opportunity sets to unlock shareholder value.”

He emphasized that the decision was grounded in fundamental considerations and that the separation into two companies would enable them to execute distinct opportunity sets more effectively, thereby maximizing shareholder value.

Upon the completion of the spinoff, TC Energy will focus on natural gas infrastructure, backed by strong, long-term fundamentals. The company will also expand its power and energy solutions business, including nuclear, pumped hydro energy storage, and other emerging energy opportunities. TC Energy, with its extensive energy infrastructure network spanning over 93,700 km (58,200 miles), is expected to deliver about 30% of total natural gas supply for LNG export from the U.S. Additionally, it will play a pivotal role in providing Canada’s first direct connection to LNG markets through the Coastal GasLink project.

Poirier further emphasized TC Energy’s commitment to a strong balance sheet and the continuation of its efforts to achieve deleveraging goals, reinforcing the company’s focus on delivering sustainable value to shareholders.

The liquids pipelines company, as an independent entity, will be led by Bevin Wirzba, who will serve as president and CEO. This entity will operate a crude oil pipeline infrastructure covering 4,900 km (3,045 miles) and will supply crude to over 14 Mbbl/d of refining and export capacity, transporting 16% of crude exported from the Western Canadian Sedimentary Basin (WCSB).

TC Energy intends to capitalize the liquids pipelines company in a manner that aligns with its business model and growth plans, ensuring the new entity maintains its investment-grade credit ratings.

The proposed Transaction is expected to be tax-free for TC Energy’s Canadian and U.S. shareholders. The company plans to seek shareholder approval for the spinoff in mid-2024. In addition to shareholder and court approvals, the transaction is subject to receiving favourable tax rulings from Canadian and U.S. tax authorities and meeting other customary closing conditions. The completion of the transaction is anticipated in the second half of 2024.