NOTE 8 ACQUISITIONS

2017 Acquisition

On June 1, 2017, the Partnership acquired from subsidiaries of TransCanada a 49.34 percent interest in Iroquois, together with an additional 11.81 percent interest in PNGTS resulting in the Partnership owning a 61.71 percent interest in PNGTS (the 2017 Acquisition). The total purchase price of the 2017 Acquisition was $765 million plus final purchase price adjustments amounting to $50 million. The purchase price consisted of (i) $710 million for the Iroquois interest (less $164 million, which reflected our 49.34 percent share of Iroquois outstanding debt on June 1, 2017), (ii) $55 million for the additional 11.81 percent interest in PNGTS (less $5 million, which reflected our 11.81% proportionate share in PNGTS’ outstanding debt on June 1, 2017) (iii) final working capital adjustments for Iroquois and PNGTS amounting to $19 million and $3 million, respectively and (iv) additional consideration of $28 million for the surplus cash on Iroquois’ balance sheet. Additionally, the Partnership paid $1,000 for the option to acquire TransCanada’s remaining 0.66 percent interest in Iroquois, which expired on January 3, 2019. The Partnership funded the cash portion of the 2017 Acquisition through a combination of proceeds from the May 2017 public debt offering (refer to Note 9) and borrowing under our Senior Credit Facility.

At the date of the 2017 Acquisition, there was significant cash on Iroquois’ balance sheet. Pursuant to the Purchase and Sale Agreement associated with the acquisition of the Iroquois interest, as amended, the Partnership agreed to pay $28 million plus interest to TransCanada on August 1, 2017 for its 49.34 percent share of the cash determined to be surplus to Iroquois’ operating needs.

Iroquois’ partners adopted a distribution resolution to address the surplus cash on its balance sheet post-closing of this acquisition transaction. The Partnership is expected to receive the $28.4 million of unrestricted cash as part of its quarterly distributions from Iroquois over 11 quarters under the terms of the resolution, which began with Iroquois’ second quarter 2017 distribution on August 1, 2017. As of February 21, 2019, the Partnership has received approximately $18.1 million of the expected $28.4 million, of which $2.6 million was received as of February 21, 2019 (Refer to Note 25), 10.3 million in 2018 and 5.2 million in 2017.

The acquisition of a 49.34 percent interest in Iroquois was accounted for as a transaction between entities under common control, whereby the equity investment in Iroquois was recorded at TransCanada’s carrying value and the total excess purchase price paid was recorded as a reduction in Partners’ Equity.

Iroquois’ net purchase price was allocated as follows:


(millions of dollars)
Net Purchase Price (a)		593
Less: TransCanada’s carrying value of Iroquois at June 1, 2017		223
Excess purchase price (b)		370

^(a)

Total purchase price of $710 million plus final working capital adjustment of $19 million and the additional consideration on Iroquois surplus cash amounting to approximately $28 million less the assumption of $164 million of proportional Iroquois debt by the Partnership.

^(b)

The excess purchase price of $370 million was recorded as a reduction in Partners’ Equity.

The acquisition of an additional 11.81 percent interest in PNGTS, which resulted in the Partnership owning 61.71 percent in PNGTS, was accounted for as a transaction between entities under common control, similar to a pooling of interests, whereby assets and liabilities of PNGTS were recorded at TransCanada’s carrying value and the Partnership’s 2016 historical financial information, except net income per common unit, was recast to consolidate PNGTS for all periods presented.

The PNGTS purchase price was recorded as follows:


(millions of dollars)
Current assets		25
Property, plant and equipment, net		294
Current liabilities		(4)
Deferred state income taxes		(10)
Long-term debt, including current portion		(41)
		264
Non-controlling interest		(100)
Carrying value of pre-existing Investment in PNGTS		(132)
TransCanada’s carrying value of the acquired 11.81 percent interest at June 1, 2017		32
Excess purchase price over net assets acquired (a)		21
Total cash consideration (b)		53

^(a)

The excess purchase price of $21 million was recorded as a reduction in Partners’ Equity.

^(b)

Total purchase price of $55 million plus the final working capital adjustment of $3 million less the assumption of $5 million of proportional PNGTS debt by the Partnership.

2016 PNGTS Acquisition

On January 1, 2016, the Partnership acquired a 49.9 percent interest in PNGTS from a subsidiary of TransCanada. The total purchase price of the PNGTS Acquisition was $228 million and consisted of $193 million in cash (including the final purchase price adjustment of $5 million) and the assumption of $35 million in proportional PNGTS debt.

The Partnership funded the cash portion of the transaction using proceeds received in 2015 from our ATM Program and additional borrowings under our Senior Credit Facility. The purchase agreement provides for additional payments to TransCanada ranging from $5 million up to a total of $50 million if pipeline capacity is expanded to various thresholds during the fifteen-year period following the date of closing.

The acquisition was accounted for as a transaction between entities under common control, whereby the equity investment in PNGTS was recorded at TransCanada’s carrying value and the total excess purchase price paid was recorded as a reduction in Partners’ Equity.

The net purchase price was allocated as follows:


(millions of dollars)
Net Purchase Price (a)		193
Less: TransCanada’s carrying value of PNGTS’ net assets at January 1, 2016		120
Excess purchase price (b)		73

^(a)

Total purchase price of $228 million less the assumption of $35 million of proportional PNGTS debt by the Partnership.

^(b)

The excess purchase price of $73 million was recorded as a reduction in Partners’ Equity.