Children Morgan Canada Ltd. is likely to use its cash windfall from buying a controversial pipeline to buy midstream assets in western Canada, say shareholders and analysts.
Justin Trudeau's liberal government buys the Trans Mountain Pipeline and its expansion project for $ 4.5 billion ($ 3.5 billion), with Kinder Morgan's controversial asset amid fierce opposition from environmental groups and the British province Columbia
August took children Morgan "a summer to start to look at things," said Bruce Campbell, president of Campbell Lee and Ross Investment Management Inc., which owns the company's preferred stock. "I would think, as a public company, that you will not only sit for two thirds of your value in cash forever."
Kinder Canada's Chief Executive Officer Steven Kean said in a teleconference on Tuesday that the company has not decided what it will do with the proceeds, which will be around C $ 1
Children Morgan can use the money to buy assets from TransCanada Corp. or Enbridge Inc. has sold some of its holdings for debt repayment. Other employment opportunities include Gibson Energy Inc. and Tidewater Midstream and Infrastructure Ltd., Campbell said in a telephone interview.
Enbridge said Earlier this month that it was not in negotiations to buy Trans Mountain
Interest could also go the other way as the government hopes to eventually find a buyer for the pipeline.
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If Enbridge or TransCanada "could We believe that a takeover could be a good project for them," said David Galison, an analyst at Canaccord Genuity Corp., adding that both companies need external funding for the project would.
Children Morgan could also use the money to settle debts and return cash to shareholders, said Robert Kwan, an analyst at RBC Capital Markets, in a note to clients.
"There is a modest amount of debt that can be repaid immediately. I expect the company to look for potential acquisitions of Western Midwest midwestern assets," said Kwan, who outperformed Morgan Canada.
The government backstop for Trans Mountain will ultimately help the Canadian oil patch, which faced high discounts, an inability to launch its crude oil, but it may take a while for the benefit to manifest itself, Campbell said.
"In itself, this is probably not enough catalyst to suddenly reach this price difference Go away," he said. "It might take a while to change the mood in 2020."
– With the support of Aoyon Ashraf and Kevin Orland