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A $2 billion deal saw Dominion Energy sell Questar Pipelines to Southwest Gas

Following the canceled deal with Berkshire Hathaway, activist investor Carl Icahn slams the new Questar Pipeline transaction.

The sale of Dominion's assets to Southwest Gas Holdings Inc. includes an assumption of $430 million in debt by the buyer. Yet Carl Icahn, who owns a stake in Nevadas utility giant, scathingly criticized the offering to no avail. In his opinion, the price that Southwest is willing to pay is unreasonable.

Previously, Berkshire Hathaway agreed to acquire Questar as part of a $10 billion deal to buy Dominion's natural gas and storage assets. The latter had earlier canceled its $8 billion pipeline project, which involved the transportation of natural gas from West Virginia to Virginia and North Carolina, ultimately leading to the brokered deal.

Yet the Federal Trade Commission delayed approval of Dominion's sale of Questar to Berkshire in July. It was a consequence of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which tanked the original arrangement.

As compared to the terms of the sale to Berkshire Hathaway, Dominion's deal with Southwest is better. In the previous agreement, Berkshire would have paid half a billion less, while now Southwest Gas agreed to offer $1.975 billion and also assured of assuming the hanging debt of $430 million.

Riding high off the disappointment of a proposed deal, Carl Icahn sent a letter to Southwest's board, calling the deal a mistake. The investor holds a 4.9% stake in the company.

He contends that the management of SWX has committed several egregious errors at the expense of shareholders in recent years. Moreover, the rumored purchase of Questar at the stated price will only make all past errors seem trivial.

In contrast, Dominion Energy sees the deal as yet another important step in the company's evolution, as this will allow it to concentrate even more on serving the energy needs of its utility customers and developing its clean-energy portfolio, including the development of North America's largest offshore wind farm.

In conjunction with the statement and despite Icahn’s outbursts, Dominion said its existing financial guidance will remain unchanged. Questar Pipelines will continue to be recorded as discontinued operations.

As for FERC-regulated Questar’s worth, it owns long-term contracts on transportation, and underground storage assets in six major producing regions in the Rocky Mountains, including the Uinta, Greater Green River, and Piceance basins, located in Utah, Wyoming, and Colorado respectively, as well as related services and processing entities. And in case regulatory approvals are obtained, the transaction should close before 2021 has run out.

It is expected that Dominion will use proceeds from the sale to reduce its parent debt to zero, including retiring the 364-day term loan that it took out in July. Dominion Energy previously used this money to repay Berkshire's approximately $1.3 billion transaction deposit. Also covered by the proceeds will be Dominion’s regulated capital plan, which is one of the largest decarbonization programs in the country.

Through the whole process, Dominion Energy was advised financially by Barclays and legally by McGuireWoods LLP.

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