Inter Pipeline seals sector sale to Pembina
Pembina Pipeline Corp. said on Tuesday it would buy rival Inter Pipeline Ltd. in an allstock $8.3-billion deal to create one of Canada’s top oil and gas transportation companies.
The deal comes nearly four months after Inter launched a strategic review as it fended off a $7.1-billion hostile takeover bid from investment firm Brookfield Infrastructure Partners.
Inter shareholders will receive half a share of Pembina for each share they own, representing a deal value of $19.45 per Inter share, a 10.8 per cent premium as of the stock’s Monday close.
Inter in March had asked shareholders to reject Brookfield’s hostile bid of $16.50 per share, saying the offer significantly undervalued it.
Brookfield then said it could raise the offer to as much as $18.25 per share, but Inter told the investment firm it would be willing to start exclusive negotiations if it was offered $24 a share.
Brookfield declined a Reuters request for comment.
Inter was left vulnerable to Brookfield’s hostile takeover due to cost overruns and construction delays at its first petrochemical project, an ambitious $4-billion plant near Edmonton, Alta.
The COVID-19 pandemic further hurt Inter’s plans for the Heartland project and its search for a joint venture partner.
The deal would also help Pembina benefit from rebounding oil and gas demand. Pipeline space for crude was in high demand in western Canada before the COVID-19 pandemic drove oil demand and supply sharply lower.
Inter’s assets include over 7,000 kilometres of pipelines and five million barrels of oil storage in Western Canada, as well as natural gas liquids’ processing plants.
Pembina’s deal values Inter at about $15.2 billion, including debt, with its shareholders expected to own 72 per cent of the combined company and Inter Pipeline shareholders owning the rest.
The companies expect nearterm cost savings of $150 million to $200 million annually
from the deal, and the transaction to add to adjusted cash flow per share.
Pembina said it would also raise its monthly dividend by one Canadian cent per share, or 4.8 per cent, to 22 Canadian cents per share after the deal closes.
It also expects to further increase the dividend by one Canadian cent per share once the Heartland project is in service, expected in 2022.