DTE Energy Co. will spin off its gas pipeline business into a publicly-traded company, the Michigan utility said on Oct. 27, a move that will increase its focus on providing power to consumers.
DTE Midstream will be separated by mid-2021, with ownership awarded to DTE Energy shareholders via a share dividend, a structure that would prevent tax liabilities, the Detroit-based firm said in a statement.
Investors welcomed the news, sending DTE Energy shares 2% higher.
"This separation will unlock significant value for our shareholders, who can invest in a pure-play utility platform with strong and visible growth and also in a high-quality midstream company," DTE Energy CEO Jerry Norcia told Reuters.
DTE Midstream will generate around $700 million of EBITDA in 2020 and carry debt worth around four times that amount, according to a DTE presentation.
While Norcia declined to give a valuation for DTE Midstream, a source familiar with the matter said the new company would likely be worth between $7.5 billion and $8 billion, including debt.
Once separated, DTE Energy would make 90% of its earnings from its regulated utility, up from 70%. The move allows it to raise capital investment to $17 billion over five years, which is important as DTE transitions towards cleaner generation sources, the statement added.
Utilities have shed non-regulated units in recent years as investors prefer the steady earnings performance of regulated power generation.
Activist investment firm Elliott Management Corp. said in a statement it welcomed the announcement, adding it had been talking to DTE management for "several months." It did not disclose whether it owns shares in DTE Energy.
DTE Energy serves 2.2 million electricity customers and a further 1.3 million gas consumers in Michigan. DTE Midstream transports natural gas extracted from shale basins in Appalachia and Louisiana.
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