September 19, 2014 / 1:58 PM / in 3 years

UPDATE 1-TransCanada says current structure critical to its strategy

(Adds details, background, analyst comment, share price move)

By Euan Rocha

TORONTO, Sept 19 (Reuters) - Canadian pipeline operator TransCanada Corp said on Friday its current corporate structure, asset base and financial strength are critical to its ability to maneuver and deliver on its growth strategy.

The statement followed a Reuters report on Thursday that a number of U.S. hedge funds were reviewing the pipeline operator as a potential break-up candidate.

Calgary-based TransCanada did not comment on the report or provide any details on any discussions it might have had with activist investors, but it acknowledged there was significant trading activity in its common shares.

TransCanada shares jumped as much as 6.3 percent on the Toronto Stock Exchange on Thursday following the Reuters report before ending the day up 3.3 percent at C$60.81 and lifting the S&P/TSX Composite Index into positive territory on the day.

In June, Citigroup analyst Faisel Khan laid out the case for a break-up, by arguing that measures such as spinning off the company’s power business and placing the remainder of its U.S. natural gas pipeline assets into a master limited partnership could lift TransCanada’s share price to C$76.

TransCanada said on Friday it remains committed to vending the remainder of its U.S. natural gas pipeline assets into its master limited partnership, TC PipeLines LP over the coming years, but that its current structure is critical to its ability to deliver on its massive capital program.

The company said it “understands the value placed on sustainable growth in cash flow, earnings and dividends,” and that it is committed to enhancing shareholder value and is continuously evaluating its approach to capital allocation.

Shares in TransCanada were up less than a percent in early trading on the Toronto Stock Exchange on Friday at C$61.12. TC PipeLines units rose a further 1.5 percent to $59.94 on the New York Stock Exchange, after having risen 2.7 percent on Thursday.

“We regard the Canadian large cap pipes approach to certain issues as being akin to Aesop’s Tortoise and Hare fable with most of the U.S. contingent being the hare,” said Credit Suisse analyst Andrew Kuske in a note to clients on Friday.

Kuske said however that he does not foresee radical changes from TransCanada for now, but noted that greater clarity around dropdowns into the master limited partnership may aid valuation.

“In our view, TransCanada can create greater value, however, this process is evolutionary versus revolutionary,” he said. (Reporting by Euan Rocha; Editing by Lisa Von Ahn and Meredith Mazzilli)

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