Gas price current event

Westcoast has been snapped up; uncertainty looms for Transat

Westcoast Energy

In our last issue, Patrick McKeough wrote about Westcoast Energy (Consider these utilities instead of bonds, Money Digest, October 2001). Since the issue went to press, there have been some new developments.

Charlotte, N.C.-based Duke Energy announced, after the markets closed on September 20, its friendly takeover of Westcoast Energy (TSE: W) for U.S.$3.5 billion.

While the negotiations had started long before the September 11 attack on the World Trade Center, that event probably gave added impetus to the takeover. The U.S. economy is dependent upon a steady supply of oil and gas and this acquisition reflects the current American mood and concerns.

This acquisition will result in efficiencies that are crucial to ensuring that pipeline extensions go ahead. The increased American presence (it currently stands at 47% of the Canadian oil and gas output) in the Canadian energy sector strengthens the North American energy industry as a whole since it brings economies of scale.

Transat A.T. Inc.

In our June issue, we wrote about Transat A.T. Inc. (TSE: TRZ). The stock was coming along nicely until the unexpected troubles started following the events of the Airbus 330 flight to Portugal. Although the flight itself seemed to have been handled with great skill by the pilot on August 24, subsequent events have affected the company. It was fined $25,000 for below par maintenance and must fly its transatlantic planes closer to land. A class-action suit for $50 million looms over the company.

Even if the class action suit is dropped or turns out to be unsuccessful, the stock price is likely to be affected. In fact, it has already dropped by over 35%.

Under the circumstances, we don't believe that Transat is a stock worth holding on to for long-term gains, unless it is a small part component of your portfolio. In such cases, you may wait for some upward blip before selling it.