By Arunima Kumar and David French
(Reuters) -Enbridge will buy three utilities from Dominion Energy for $14 billion including debt, the Canadian pipeline operator said on Tuesday, creating North America's largest natural gas provider and doubling its gas distribution business.
The deal is seen as a bet on the future of natural gas in a regulated market even as energy companies and consumers are transitioning to a greener future by phasing out fossil fuels.
The deals for East Ohio Gas, Questar Gas, and Public Service Co of North Carolina will consist of $9.4 billion in cash and $4.6 billion of assumed debt.
U.S.-listed shares of Enbridge fell 6.5% to $33.01 in extended trading after the company also announced a C$4 billion ($2.9 billion) bought-share sale to fund a portion of the deal.
The divestments are the latest by Dominion following a strategic refresh announced last year aimed at focusing on its regulated operations. In July, Dominion agreed to sell its 50% stake in Cove Point LNG to the energy arm of Berkshire Hathaway for $3.3 billion.
Enbridge President and CEO Greg Ebel described the assets the company is acquiring as "must-have" infrastructure for providing safe, reliable and affordable energy.
The deal is expected to close in 2024, subject to approvals from the Federal Trade Commission and Committee on Foreign Investment in the United States, among others.
Upon closing, Enbridge would supply over 9 billion cubic feet per day (bcfpd) of gas to about 7 million customers in Ohio, North Carolina, Utah, Idaho and Wyoming, making it the largest gas utility business by volume in North America.
It would give the Calgary-based company access to a bigger chunk of cash from U.S. consumers as they buy gas for cooking and heating from an Enbridge-owned utility.
"Enbridge is currently the only major pipeline and midstream company that owns a regulated gas utility and we've further strengthened that position today by doubling the size of our GDS (gas distribution and storage) business," Enbridge's Chief Financial Officer Patrick Murray said in a statement.
Ratings agency Moody's swiftly downgraded the outlook for Enbridge and four subsidiaries to negative from stable, saying the deal would add pressure to an "already weak financial profile that we expect to persist following the transaction close."
The modest improvement in Enbridge's business risk profile is not enough to "offset ongoing pressure on the company's financial profile," said Gavin MacFarlane, vice president and senior credit officer at Moody's, in a statement.
U.S. utilities have zeroed in on their regulated operations as they provide the steady returns preferred by investors, compared with unregulated assets whose returns are dictated by market dynamics.
Morgan Stanley & Co LLC and RBC Capital Markets acted as financial advisors to Enbridge, while Sullivan & Cromwell LLP and McCarthy Tétrault LLP were legal advisors.
($1 = 1.3636 Canadian dollars)
(Reporting by Arunima Kumar in Bengaluru and David French in New York; Writing by Denny ThomasEditing by Shailesh Kuber, Sriraj Kalluvila and Richard Chang)