INTER SCRAPS PEMBINA DEAL
Brookfield offer favoured
Brookfield Infrastructure Partners' fourth offer for Inter Pipeline Ltd. has convinced the embattled pipeline company to abandon a friendly deal with rival Pembina Pipeline Corp. in favour of the Toronto-based asset manager.
Inter Pipeline announced Monday it now favours a fourth-time revised hostile offer from Brookfield for an implied value of $20.63 per share over an all-share negotiated deal from Pembina.
As it spurns Pembina, Inter Pipeline will pay the Calgary-based rival pipeline company a $350-million break fee to terminate the arrangement.
Inter Pipeline ended the down 1.3 per cent lower to $19.96 per share on the Toronto Stock Exchange, while Brookfield Infrastructure slid 0.3 per cent to $54.71.
Both Brookfield and Pembina have fought over Inter Pipeline because the Calgary-based company's assets could fit into a larger pipeline network that may eventually include the Trans Mountain pipeline expansion. Analysts believe Pembina was primarily interested in Inter Pipelines natural gas liquids business and Brookfield is primarily interested in the company's oilsands pipelines.
“The industrial logic of combined Pembina and Inter Pipeline remains unparalleled and the value creation between certain of our assets is impossible to replicate by any other entity,” Pembina president and CEO Mick Dilger said in a release Monday.
Dilger, who has twice tried to buy Inter Pipeline in the past, said he was disappointed by the target company's decision but added Pembina would look for additional acquisitions.
Pembina shares jumped more than four per cent, or $1.65 each, to $41.03 per share by close on Monday as the deal was scrapped.
Pembina recently signalled its intention to bid for the Trans Mountain pipeline and expansion project in forming a partnership with an Indigenous group interested in purchasing the federally owned West Coast oil pipeline.
The announcement was a notable change for the pipeline company, which has previously said its strategy is to avoid attracting attention.
In the middle of its push to buy Inter Pipeline, Pembina also announced a partnership with the Haisla Nation to build the floating Cedar LNG project near Kitimat, B.C. “Pembina remains optimistic about its future, including the profitability of our existing business given foreseeable sector tailwinds, as well as with tremendous flexibility to pursue an ever increasing and more diverse set of opportunities for growth, some of which we were able to highlight in advance during this process,” Dilger said.
Analysts expect Pembina may yet also buy up a handful of Inter Pipeline assets as Brookfield could carve out some parts of the business.
“We do note a potential transaction carve-up, with Brookfield noting its interest in divesting certain assets to Pembina or other interested parties,” National Bank of Canada Financial Markets analyst Patrick Kenny wrote in a research note Monday.
Kenny recommended Inter Pipeline shareholders continue holding onto their shares as the company begins to engage in negotiations with Brookfield on a friendly deal.
Splitting up Inter Pipeline's assets could be a “win-win-win” for all three companies, RBC Capital Markets analyst Robert Kwan wrote in a July 18 research note, adding that Pembina was primarily interested in Inter Pipeline's natural gas liquids business.
Kwan said Brookfield has floated a proposal to sell off parts of Inter, which could include selling the natural gas liquids business to Pembina, while keeping Inter Pipeline's oilsands pipelines for itself.
It's unclear whether negotiations will drive up Brookfield's offer for Inter Pipeline any higher, however, as Toronto-based unit of Brookfield Asset Management only upped its offer after Pembina's competing offer.
“We believe Inter Pipeline's board made the right decision in withdrawing its support for a strategic combination that was not in the best interest of shareholders,” Brookfield Asset Management senior vice-president of communications and branding Claire Holland said in an emailed statement.
Brookfield's deep pockets and revised offers wooed the board, as did advisory firm ISS'S recommendation to Inter Pipeline shareholders to pick the Brookfield offer.
The Toronto-based asset manager's first offer of $16.50 per Inter Pipeline share has been revised up multiple times to land most recently at $20 per share in cash, or a value of $20.63 of cash and Brookfield shares.
Inter Pipeline's annual meeting is scheduled for Thursday and shareholders are expected to vote on the Brookfield offer.