EnCana Set for Long Awaited Split

Sep.11.09 | About: Encana Corporation (ECA)

It has taken more than a year, but EnCana Corp. (NYSE:ECA) appears set to split into two focused energy companies as the company's board announced the renewed plan after market close Thursday.

The deal, expected to close at the end of November, will see EnCana split into two companies: EnCana GasCo, focused on natural gas, and Cenovus Energy Inc., centred on integrated oil. EnCana shareholders will receive one share of each company under the proposed split.

Andrew Potter, analyst with UBS, said the company had first announced plans to split in May 2008, but dropped the idea as equity markets grew chaotic and volatile.

He said in a note Friday:

With improving equity and debt markets, management now believes conditions are favourable to proceed with the split. Overall we believe the transaction is positive over the long-term, although we expect the short-term reaction to be relatively neutral given the split has been widely anticipated.

Mr. Potter expects GasCo shares to be initially worth C$45 each, while Cenovus will start off at C$20 a share. This combined value is less than the C$100 a share UBS had forecasted when the potential split was first announced in 2008.

UBS maintains a Buy rating and C$65 price target for EnCana, equal to the combined total of their forecasts for the two potential new companies.