Atco Group agrees to purchase Western Australian Gas Networks

Atco Group TCO (TSX:ACO.X) is buying a natural gas utility in Perth, Australia, in a deal valued at about C$1.03 billion including debt, the company’s biggest deal outside of Canada.

Atco Group TCO (TSX:ACO.X) is buying a natural gas utility in Perth, Australia, in a deal valued at about C$1.03 billion including debt, the company’s biggest deal outside of Canada.

Atco Group president and chief executive Nancy Southern said the deal will double the number of Atco employees in Australia to around 500 people and give it the scale needed to grow in a market much like the firm’s home base in Calgary.

“Even though it is a long way to get to, we feel very comfortable with the environment,” she said, comparing Perth and the surrounding region to Calgary in the 1970s and 1980s.

The acquisition is similar to Atco’s business in Canada where it’s Atco Gas natural gas utility subsidiary in Alberta has more than one million customers.

Southern said the company will first look to become comfortable with its new purchase and learn a little about the market, which is one of the world’s fastest growing cities.

“And then we’ll look to work with the regulator and the government of the state to see whether there aren’t other opportunities where we can accommodate infrastructure growth,” she said.

Under the deal, Atco will acquire a 74.1 per cent interest in WAGN from WestNet Infrastructure Group and the remaining 25.9 per cent interest from DUET Group.

Atco said the price tag including transaction costs, includes the assumption of approximately C$665 million in debt. The balance will be funded by cash reserves.

The new asset will become a wholly-owned subsidiary of Canadian Utilities, an Atco company.

RBC Capital Markets analyst Robert Kwan called the deal neutral for Atco shares as the company had signalled it was in talks in May.

“Overall, our initial thought is that the transaction is neutral to CU’s share price pending additional details from management,” Kwan wrote in a note to clients.

“The announcement does not come as a surprise and the valuation, although not cheap, does not seem unreasonable.”

The purchase, if approved by the Australian Foreign Investment Review Board, is expected to close in the third quarter of this year.

WAGN connects more than 620,000 customers through 12,800 km of natural gas pipelines and associated infrastructure.

The deal also includes WestNet Infrastructure Group’s information technology division, a supplier of services to key utilities.

Atco Group has more than 7,700 employees across several businesses including utilities, power generation, natural gas gathering, processing, storage and liquids extraction, manufacturing, logistics and noise abatement.

Atco has three power plants in Australia as wells as a manufacturing business for modular workforce housing.

Shares in the company were up 18 cents at $62.64 on the Toronto Stock Exchange on Thursday afternoon.