Enbridge to buy Spectra Energy Partners in $3.3-billion deal
Pipeline companies are reorganizing their business structure after tax changes
Pipeline giant Enbridge Inc. agreed to buy all outstanding shares of Spectra Energy Partners LP in a deal aimed at streamlining its corporate structure in the wake of U.S. tax changes.
The agreement to acquire its master limited partnership is valued at $3.3 billion (all figures U.S.) based on the closing price of Enbridge shares in New York trading on Thursday. It follows by two years the Calgary-based company’s acquisition of Spectra Energy Corp. for $28 billion, creating the largest energy pipeline and storage company in North America.
The latest pact, signalled by Enbridge in May, comes as companies from Williams Cos. to Energy Transfer Partners LP have ditched the MLP model — often used to own pipelines carrying oil and natural gas — after losing a key federal tax benefit in March. That decision sent stock prices — called unit prices for MLPs — plummeting, making it harder for partnerships to go to the public market to raise money for pipeline projects.
Enbridge on Friday cited a “significant weakening” of the MLP market as adversely affecting partnerships’ ability to fund growth projects, including for Spectra.
“The sponsored vehicles really don’t have a good runway here,” Enbridge chief executive officer Al Monaco said on a call with analysts earlier this month. “The ability for the vehicles to grow, at least in our view, has been dampened and compromised.”
The sweetened deal comes after regulators in July made major concessions on their initial decision, allowing partnerships to take a tax allowance for three years under certain circum- stances and not requiring refunds for upfront tax payments passed on to customers.
Enbridge “did bend to it a little bit,” MUFG Securities Americas Inc. analyst Barrett Blaschke said by telephone. “They’re expecting the changes to be less impactful than they originally expected.”
Enbridge will acquire all of the outstanding public common units of its master limited partnership on the basis of1.111common shares of Enbridge for each common unit of the Houston-based subsidiary. The transaction is set to close in the fourth quarter of 2018.
“We view this as a positive step toward reducing corporate complexity," Tudor Pickering Holt & Co. analysts said in a note to clients on Friday. Bank of America Merrill Lynch and Scotiabank were financial advisers to Enbridge, while Jefferies LLC acted as financial adviser to Spectra’s Conflicts Committee.