In February 2016, Dominion Resources announced the acquisition of Questar Corporation for $4.4 billion. Richmond, Virginia-based Dominion operates electric utilities in Virginia and North Carolina, local gas distribution companies (LDCs) in Ohio and West Virginia, and electric transmission and electric generation businesses. Dominion also is the general partner and majority owner of Dominion Midstream, a master limited partnership with storage assets and gas pipelines on the East Coast. Based in Salt Lake City, Utah, Questar is a natural gas distribution, pipeline, storage, and cost-of-service gas supply company that serves nearly one million homes and businesses in Utah, Wyoming, and Idaho. Questar also owns about 3,400 miles of gas transmission pipeline and 56 billion cubic feet of working gas storage.

The Dominion-Questar deal is the third major acquisition involving a natural gas company in about seven months (Duke Energy-Piedmont Gas and Southern Company-AGL Resources were announced during the second half of 2015). Similar to the previous deals, the Questar acquisition is expected to provide scale, geographic diversification, and growth opportunities. However, financial analysts say that this deal is somewhat different because midstream assets (i.e., Questar’s pipeline), rather than the utility businesses, are the primary driver. Also, Dominion’s proposed geographic expansion is greater than what Duke and Southern would achieve with their acquisitions.

Key Details

• The combined company will have about 2.5 million electric and 2.3 million gas customers in seven states
• The deal represents about a 30% premium to Questar’s shareholders (based on January 2016 trading). The previous two deals are relatively more expensive: Duke and Southern agreed to pay 40+% and 36% premiums, respectively
• Dominion plans to sell (drop down) Questar’s pipeline assets to Dominion Midstream over two years beginning in 2017

Key Implications

• The Dominion-Questar deal strengthens the widespread belief that merger and acquisition (M&A) activity will continue due in large part to stagnant electric load growth and low gas prices. Natural gas companies with a significant LDC business or that operate in a single state are potential targets for acquisition
• The EPA’s proposed Clean Power Plan has been a driver in previous acquisitions. While the recent stay granted by the U.S. Supreme Court may slow the pace on some M&A activity, other factors (e.g., low gas prices) are likely compelling enough for future deals to continue

More Information

RRA: Dominion’s Proposed Acquisition of Questar Corp

SNL: Dominion/Questar: Utility Convergence Wrapped Around Pipe

SNL: Wall Street Largely Applauds Price Tag in Dominion-Questar Deal

Bloomberg: Dominion to Buy Questar for $4.4 Billion to Boost Gas Sales

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