Opinions
Jim Huang
AltaGas Ltd
ALA.R-T
COMMENT
Mar 20, 2017
Stock price when the opinion was issued
You might be interested:
The company has just issued these Subscription Receipts for stocks, for a US acquisition they plan to do that should close in the 2nd quarter of 2018. There are a few worries where they have a big chunk of debt and some worries on the utility side. In his view, the debt levels will go down. If the deal doesn’t go through, the subscription receipt holders get their money back. This is trading at about $1 less then the common shares. Dividend yield of 7.1%.
(A Top Pick Mar. 16/17, Down 6%) These were issued when they announced a big Washington DC utility acquisition at $31. If the deal does not happen, you get your $31 back. If the deal goes through, the receipts turn into common shares, so you get your money back and get the 8% dividend. The deal should close this September. They historically increase their dividend, but likely won't raise it until the deal happens, because they need the money now.
They issued them at $31 for the WGL deal in the U.S. If the WGL deal fails, you collect the dividend and receive your $31 back. If the deals does pass, there'll be a lot of upside with AltaGas. ALA say they have their financing ready, but will need to seel assets. We should hear later this year if WGL gets final regulatory approval.
(A Top Pick May 24, 2017. Down 10%). This is a complex story because these were issued contingent on the US takeover. If the deal, which is now scheduled to complete in September, does not go through, the subscribers get their $31 back. In the interim, stockholders get paid a dividend of about 8%. When the acquisition closes, it will generate a lot of new cash flow. He thinks this is a better place to be than the underlying company.
If you like Altagas, then clearly you want to own the subscription receipts. It trades at a discount, but you get the same dividend. The receipts are issued for the purpose of finalizing the acquisition of WGL Holdings, a utility company in the US. If it does not get regulatory approval, the money gets returned to you. He doesn’t see anything to lose. It’s a good acquisition for them. If you have a medium to long term time horizon, this should perform well for you.