TC Energy Splitting into Two Companies

If you own TC Energy, I do, today was not a good day. TC Energy (TRP) announced it was splitting into two companies by spinning off its liquids pipelines business. When the market opened, the stock took a dive. Markets do not like surprises and this was a surprise, a big surprise.

BNN reports, "Under the proposed transaction, TC Energy shareholders will retain their current ownership in TC Energy’s common shares and receive a pro-rata allocation of common shares in the new liquids pipelines company. The number of common shares in the new company to be distributed to TC Energy shareholders will be determined prior to the closing of the split."

The company had pledged to sell C$5 billion of assets. A goal that was achieved earlier this week with the agreement to sell a 40% stake in two US natural gas pipeline networks for C$5.2 billion in cash. This sounds good but it may fall short of what TC Energy paid for the Columbia systems just seven years ago in 2016.

The Globe and Mail reports, "The good news for TC Energy is that more than 90 per cent of its cash flows come from regulated assets and long-term contracts, so it has reliable revenues ahead." The bad news is that TC Energy can no longer be said to be a buy. TRP is now a hold --  solid hold. 

It will be interesting to see how Morningstar reacts as TC Energy has just recently been upgraded to a core holding in a number of Morningstar-designed portfolios. Mere weeks ago the Core Pick List reported, "For July’s Pick list, our model recommended the addition of TC Energy TRP . . . " The Canadian Income Pick List called TC Energy (TRP) a top performer with total returns of 3.1%.

Stay tuned. TC Energy has flipped into the Hold category: a surprise.