AltaGas Ltd. to Acquire WGL Holdings, Inc. in C$8.4 Billion Transaction

AltaGas Ltd. ("AltaGas") (TSX:ALA) and WGL Holdings, Inc. ("WGL") (NYSE:WGL) announced today the entering into of a definitive agreement and plan of merger for AltaGas to acquire WGL in an all cash transaction (the "Transaction") valued at approximately C$8.4 billion. WGL is a diversified energy infrastructure company which is the sole shareholder of Washington Gas Light Company, a regulated natural gas utility headquartered in Washington D.C., has a growing contracted midstream franchise in the Marcellus/Utica, and also owns non-regulated contracted power and energy marketing businesses throughout the United States. The Transaction enhances AltaGas' position as a leading, diversified North American energy infrastructure company, with assets of approximately C$22 billion. AltaGas will have, on a combined basis, natural gas rate base assets of C$4.5 billion and over C$7 billion of identified capital investment opportunities identified through to 2021 in highly attractive clean energy lines of business.

"We look forward to welcoming WGL employees and customers to AltaGas," said David Harris, President and CEO of AltaGas. "This acquisition provides us with a robust, complementary set of energy businesses that greatly increase our scale and diversity. Our first priority in making this successful is to continue serving WGL's customers and communities with safe, reliable and affordable service and maintaining the strong relationships WGL has built with regulators."

"This is a significant and positive event for WGL and all of its stakeholders -- its employees, customers and shareholders," said Terry McCallister, Chairman and CEO of WGL. "Our leadership team and Board of Directors are convinced that we have found exactly the right partner in AltaGas. We are confident that, together, we will be a more diverse and stronger company that will open up new and exciting opportunities to provide value for all of our stakeholders."

Under the terms of the Transaction, WGL shareholders will receive US$88.25 in cash per WGL share, which represents an 11.8 percent premium to WGL's closing share price on January 24, 2017. The purchase price also represents a premium of 27.9 percent to WGL's closing share price on November 28, 2016, the day prior to news reports of a potential acquisition of WGL by a third party. The Transaction represents a total enterprise value of C$8.4 billion, including the assumption of approximately C$2.4 billion of debt.

The Boards of Directors of AltaGas and WGL have unanimously approved the Transaction, which is expected to close by the end of the second quarter of 2018. The Transaction is subject to certain closing conditions, including WGL common shareholder approval and certain regulatory and government approvals, including approval by the public utility commissions of Maryland, Virginia and Washington D.C., the Federal Energy Regulatory Commission, and the Committee on Foreign Investment in the United States, and expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Leading North American Energy Infrastructure Company

This transformational Transaction enhances AltaGas' status as a leading, North American diversified energy infrastructure company with high quality, high growth assets balanced across three business lines and multiple geographies. Following the closing of the Transaction, AltaGas will have substantially increased scale and scope, with approximately 3,300 employees across significant operations in over 30 states and provinces in both regulated and un-regulated businesses, including eight growing gas utility franchises, a large and growing midstream and energy export footprint in both the Montney and the Marcellus/Utica, and a substantial contracted clean power and energy efficiency business in over 20 states and provinces.

Upon the closing of the Transaction, AltaGas' assets are estimated to be approximately C$22 billion and AltaGas is expected to have a diversified growth portfolio of over C$7 billion in low-risk, investment opportunities throughout its three business segments through to 2021.

AltaGas' Utility business segment will also become a leading North American natural gas utility, with an estimated C$4.5 billion in rate base assets, as measured at the end of 2016.

Both companies have complementary pipeline and midstream businesses in two prolific regions, which are connected with marine-based energy exports both on the North American Pacific coast (through AltaGas' interest in the existing Ferndale LPG terminal, and AltaGas' Ridley Island Propane Export Terminal project which is expected to be completed in 2019) and the North American Atlantic coast (through WGL's growing LNG exposure at the proposed Cove Point LNG terminal in Maryland, currently expected to be operational in late 2017). The combined Midstream business is expected to drive a significant portion of the growth in the near term.

WGL also has a significant existing portfolio of clean power assets that generate stable cash flows and will also be well-positioned to significantly grow in solar, wind, fuel cell, battery storage and other clean technologies, as well as natural gas generation. WGL also has a retail energy services business with 275,000 customers in Maryland, Virginia, Delaware, Pennsylvania and the District of Columbia.

"The strategic fit and compatibility of our two companies is exceptional. Both companies are strong utility operators, have a sweet spot of pipeline and midstream investments in premier supply basins, and have power generation businesses weighted to clean energy and innovations," said David Harris, President and CEO of AltaGas. "With WGL joining the AltaGas family of companies, AltaGas' business will enjoy a larger, more stable and geographically diverse regulated footprint. We can also deploy capital for future growth in all lines of business with greater scope, scale, talent, access to capital and consistent strategy. For our shareholders, the Transaction is expected to be meaningfully accretive to earnings and operating cash flow in the short and long term."

Terry McCallister, Chairman and CEO of WGL said, "We are proud of our company and are enthusiastic about the combination. Our focus at WGL has been creating value for our shareholders while at the same time providing superior service to our customers and to the communities we serve. This Transaction not only allows our shareholders to benefit from a substantial premium on their shares, but it also ensures our customers and communities will continue to receive the same great service we have provided for decades. AltaGas shares our values, including maintaining the strong working relationships we have developed with our regulatory agencies. The WGL team looks forward to contributing to AltaGas' future and the opportunities for growth across the organization."

Social Values and Commitments to WGL's Communities, Customers and Employees

David Cornhill, Chairman of AltaGas said, "Creating social value has always been part of AltaGas' DNA. We welcome WGL employees with open arms and will do our best to ensure the safe, reliable and affordable service that our customers and communities deserve. Combined with WGL, AltaGas is clearly a leading Canada-based North American energy infrastructure company."

Following the completion of the Transaction, WGL's natural gas utility will continue to be regulated by the three state public service commissions and will continue to operate under the WGL brand. WGL's experienced workforce will continue to deliver safe and reliable service at reasonable rates. As part of the Transaction, AltaGas will keep WGL's headquarters in Washington D.C. and intends to retain existing WGL executives to assist in managing AltaGas' U.S. regulated Utility business. AltaGas will relocate the headquarters of its U.S. Power business to WGL's service region.

Mr. Harris commented, "We recognize the strength of the platform that WGL has built in Maryland, Virginia and Washington D.C., including its high-quality customer and employee bases. Like WGL, AltaGas has a strong sense of responsibility and commitment to our customers and communities. Together we look forward to building up our presence in each of these jurisdictions as we integrate our companies and further invest in the region. We also intend to expand WGL's presence in other states as well."

AltaGas and WGL are committed to engaging regulators in all jurisdictions as promptly as possible. AltaGas has a history of successfully executing acquisitions in the United States, working constructively in regulatory processes, standing behind its commitments and successfully engaging with stakeholders in its service areas.

Detailed Transaction Highlights

•     Complementary business mixes. AltaGas and WGL are both diversified energy infrastructure companies with meaningful operations in Utilities, Midstream and Clean Power. The Transaction allows both companies to leverage the other's expertise and assets to further develop each business, execute on growth and drive shareholder value.
•     Significantly stronger and more diversified growth platform. Following the completion of the Transaction, AltaGas will have increased scale and diversification, with assets estimated at approximately C$22 billion. Approximately C$7 billion in identified highly visible capital investment opportunities exist through 2021, of which over half would be in Midstream and Power. The Transaction expands AltaGas' regulated utility geographic platform into Washington D.C., Maryland and Virginia. On a pro forma basis, AltaGas will operate regulated gas utilities in 8 jurisdictions with strong opportunities for growth. The Transaction also provides other opportunities to grow the combined business. In particular, AltaGas expects significant opportunities to further grow the midstream business with a meaningful and growing presence in both the Montney and Marcellus/Utica gas formations, which will drive near term growth. It also provides an opportunity to grow AltaGas' contracted power business in other territories and to grow WGL's clean power and energy services business both through geographic expansion as well as through a lengthened tax horizon and stronger combined asset base.
•     Reinforces AltaGas' strategy of focusing on high-quality, low-risk and long-life assets. Following the close of the Transaction, AltaGas expects that approximately 75 percent of combined normalized EBITDA1 will be from regulated gas utilities, Northwest BC Hydro assets (~60 year contracts), regulated gas pipelines and contracted take-or-pay/cost-of-service midstream assets. The balance is primarily contracted clean power PPAs and contracted fee-for-service gas midstream assets. Collectively, this portfolio of assets provides cash flow stability and underpins AltaGas' growing dividend. Over the long-term, AltaGas seeks to maintain a balanced utility, midstream and power business mix.
•     Geographic diversity. Following the closing of the Transaction, AltaGas will have diversity across geographies and regulatory jurisdictions, minimizing regulatory risk to the overall business from any particular jurisdiction. In the first full year following the close of the Transaction, AltaGas is expected to generate approximately 70 percent and 30 percent of normalized EBITDA in the United States and Canada, respectively.
•     Transaction is highly accretive to EPS and normalized FFOPS. EPS accretion is expected to be 7-9 percent in the first full year, and normalized FFOPS accretion is expected to be over 20 percent. AltaGas, following the closing of the Transaction, is expected to have higher growth on an absolute dollar value and per share basis, with double digit compound annual growth rates in EPS, normalized EBITDA and normalized FFOPS through 2021. As a result, the Transaction is also expected to result, on average, in 8-10 percent accretion to EPS, and normalized FFOPS accretion of 15-20 percent through 2021.
•     Transaction underpins 8-10 percent dividend growth through 2021. Pro forma for the Transaction, the strength of AltaGas and attractiveness of the growth opportunities will allow AltaGas to focus on growing its dividend by 8-10 percent into the future, while improving its dividend payout ratios.

Transaction Financing

The Transaction is not subject to any financing contingency and AltaGas has a fully committed US$4.95 billion bridge financing facility in place with J.P. Morgan Chase Bank, The Toronto-Dominion Bank, and Royal Bank of Canada to finance the Transaction. Permanent financing of the Transaction is expected to be achieved through an approximate $400 million private placement of subscription receipts to OMERS, the pension plan for Ontario's municipal employees, and a bought subscription receipt offering for gross proceeds of approximately $2.1 billion, launched concurrently with this announcement.

Tim Watson, CFO of AltaGas commented, "This private placement demonstrates the strength not only of AltaGas' reputation in the public markets, but also the strength of the combination with WGL being announced today. We look forward to having OMERS as an investor in our company for years to come." For further details, please see the press release issued by AltaGas contemporaneously with this release.

Furthermore, AltaGas will also finance the Transaction with subsequent offerings of senior debt, preferred shares and hybrid securities, as well as selected AltaGas asset sales. AltaGas has a US$2.0 billion tranche of its bridge facilities allocated to covering asset sales, which would be available for up to 18 months following closing of the Transaction. Furthermore, AltaGas believes there are a number of attractive, actionable opportunities to monetize portions of its three businesses in a manner which supports AltaGas' long term strategy of growing in attractive areas and maintaining a long term, balanced mix of energy infrastructure assets. The timing of these subsequent offerings and asset sales is subject to prevailing market conditions, but are expected to be completed prior to the closing of the Transaction.

AltaGas is committed to maintaining its financial strength following the closing of the Transaction and will look to fund its significant organic growth portfolio in a manner consistent with AltaGas' past practices with several financing sources including a more conservative dividend payout ratio resulting from transaction accretion, ongoing dividend reinvestment, additional capital market opportunities in the United States, continued access to the Canadian capital markets, and maintaining strong investment grade credit ratings.

Analyst and Investor Teleconference Call

AltaGas will be hosting a conference call and webcast on Wednesday, January 25, 2017 at 3:00 PM Mountain time (5:00 PM Toronto/Montreal/New York)

Analysts and investors in North America wanting to participate in the call should dial 1-844-543-5238 at least 10 minutes prior to the start of the call. International participants wanting to participate should dial 1-703-318-2220. No pass code is required. The conference call will be recorded. If you are unable to join the conference call live, you can dial for playback, toll-free at 1-855-859-2056. International participants wanting to listen to the playback can dial 1-404-537-3406. The passcode is 60526169 (available until midnight, January 27, 2017). Presentation slides for the conference call will be available and the teleconference will be web cast live at http://edge.media-server.com/m/p/2khbbiz9 and available for playback for one year.

Media Teleconference Call

Members of the media are invited to take part in a conference call on Wednesday, January 25, 2017 at 3:45 PM Mountain time (5:45 PM Toronto/Montreal/New York). Media wanting to participate in the call should dial 1-877-691-2551, passcode 44242733, at least 5 minutes prior to the start of the call. Canadian participants wanting to participate should dial 1-866-215-5508, passcode 44242733. All other international participants wanted to participate should 1-630-691-2747, passcode 44242733. The teleconference will be recorded and a transcript will be available.

Advisors

J.P. Morgan Securities LLC is acting as lead financial advisor and TD Securities Inc. is acting as financial advisor to AltaGas. Vinson & Elkins LLP is acting as lead legal advisor and Stikeman Elliott LLP is acting as legal advisor to AltaGas.

Goldman, Sachs & Co. and Lazard are acting as financial advisors to WGL. Kirkland & Ellis LLP is acting as lead merger counsel and Covington & Burling LLP is acting as lead CFIUS counsel to WGL.