Transco Energy Will Buy CSX’s Texas Gas Unit : Pipeline Included in $646-Million Price Tag

HOUSTON — Transco Energy Co., a leading natural gas supplier, said Friday that it would purchase the Texas Gas Transmission Corp. and related assets from the transportation group CSX Corp. for $646 million.

Texas Gas operates the 6,000-mile Texas Gas Transmission pipeline, which extends from the Gulf Coast area into Ohio, Indiana, Tennessee and Kentucky. It moves 600 billion cubic feet of gas a year.

The move increases Transco’s gas transportation capacity to the Northeast and takes the company further away from the depressed gas and oil exploration sector. The company is the largest provider of gas to New York and New Jersey.

Transco already has a 10,000-mile pipeline system that runs from the Gulf Coast to the East. Its capacity is 3.1 billion cubic feet a day.

To link the two systems, Transco has signed an agreement with CNG Transmission Corp. to use a line going from Ohio to Pennsylvania.

Analysts estimate that CSX paid about $1 billion for the pipeline as part of its 1983 purchase of Texas Gas Resource Corp.

Transco said it was paying $571 million in cash for the operations plus a special $75-million cash dividend before the deal is closed.

Financing Plans

Transco also said it will also assume $256 million of Texas Gas’ existing long-term debt. The Houston-based company said it expects the sale to be completed by early spring after completion of a notification period required by federal law.

The acquisition will be financed with up to $350 million in new debt and a private sale of $200 million in Transco stock to Corporate Partners, an investor group.

The purchase affirms Transco’s commitment to concentrating on the pipeline business. The company announced earlier this year its intent to sell most of its onshore oil and gas exploration and production business.

“Texas Gas provides an excellent strategic fit with Transco’s businesses,” Transco President George Slocum said in a statement.

For Richmond, Va.-based CSX, the sale represents another move in its restructuring away from energy. The company is primarily a railroad carrier with 21,600 miles of track in 21 states.

“With this sale, CSX completes a major portion of its restructuring,” CSX Chairman Hays Watkins said.

Wall Street analysts said the purchase was good for Transco.

“It creates new markets in Ohio and upper New York and gives them a window on supplies from southwest Louisiana at the other end of the line,” said John Olson of Drexel Burnham Lambert.

“It’s a good deal because it’s a lot less than what CSX paid,” said Chuck Strain, analyst with Lovett Mitchell Webb & Garrison.