Dominion Resources Expands Westward With Questar Acquisition

Dominion Resources Inc. (NYSE: D) announced Monday morning that it has reached an agreement to acquire Questar Corp. (NYSE: STR) for $25 a share in cash, or a total of about $4.4 billion. Dominion also will acquire Questar’s debt of around $2 billion. The purchase price reflects a premium of about 25% to Questar’s Friday closing price of $20.39, and 30% to the volume-weighted average stock price for the 20 trading days prior to January 29.

A natural gas distribution company, Questar is headquartered in Salt Lake City and serves about a million homes and businesses in Utah, Wyoming and Idaho. Questar employs about 1,700 people and has about $4.2 billion in assets, including approximately 27,500 miles of gas distribution pipeline, 3,400 miles of gas transmission pipeline, and 56 billion cubic feet of working gas storage.

Investors may want to note that Questar’s current dividend yield is 4.12%, compared with Dominion’s yield of 3.88%.

Dominion CEO Thomas F. Farrell II said:

This addition is well-aligned with Dominion’s existing strategic focus on core regulated energy infrastructure operations. Questar boasts best-in-sector customer growth in states with strong pro-business credentials and constructive regulatory environments. These high-performing regulated assets will improve Dominion’s balance between electric and gas operations and provide enhanced scale and diversification into Questar’s regulatory jurisdictions.

Dominion’s primary operations before this acquisition have centered on the mid-Atlantic region. One of the attractions of expanding in the West, according to Dominion, is the region’s business-friendliness exemplified by “constructive regulatory environments.”
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According to the announcement, investors in Dominion Midstream Partners L.P. (NYSE: DM) also stand to gain from the deal:

Questar … is expected to contribute more than $425 million of EBITDA to Dominion’s inventory of top-quality, low-risk MLP-eligible assets, supporting Dominion Midstream’s targeted annual cash distribution growth rate of 22 percent.

Questar’s stock was indicated up more than 20% in Monday’s premarket, at $24.52 in a 52-week range of $18.02 to $26.10. The stock’s consensus price target had been $21.00.

Dominion’s stock was inactive Monday morning, having closed at $72.17 on Friday in a 52-week range of $64.54 to $78.88. The consensus price target on Dominion stock is $77.29.