Spectra agrees to major energy merger
Enbridge from Canada buying Texas company for $28 billion
The Canadian energy conglomerate Enbridge is buying the Houston pipeline company Spectra Energy for $28 billion in stock, a deal that could create one of the largest energy transportation companies in North America.
The merger, which would combine Enbridge’s oil pipeline, rail and electric transmission holdings with Spectra’s 90,000-mile network of gas pipelines, would forge a combined company worth $127 billion in enterprise value, surpassing competitors such as Kinder Morgan, Enterprise Products Partners and Plains AllAmerican Pipeline, both from Houston. Spectra shareholders would get an 11.5 percent premium on their shares from the Sept.
2 market close of $36.15.
The deal is expected to close in the first three months of next year.
“We’ve always thought this might be a good fit,” Al Monaco, Enbridge’s chief executive, said in an interview on Tuesday. “Within the last three or four months, we kind of got into it in earnest.”
The planned merger comes as the oil market crash, coupled with growing opposition to new pipeline projects, leaves companies like Enbridge forced to grow through acquisition rather than investing in expensive new pipelines that might never get built. Regulators have quashed large projects, such as TransCanada’s Keystone XL while others have run into fierce opposition.
On Tuesday, a judge in Washington ordered a temporary halt to a portion of the $3.8 billion Dakota Access pipeline; the Standing Rock Sioux Tribe says the project would harm its sacred and environmentally sensitive lands. Protests over the pipeline, developed by Energy Transfer of Dallas, turned violent over the weekend with protesters and guards injured.
The pipeline would cross North Dakota, South Dakota, Iowa and Illinois.
“What do these big infrastructure companies do to grow?” asked Sandy Fielden, director of oil and products research at investment data firm Morningstar. “One of the things they can do is start merging with each other.”
Other pipeline companies have done so — or tried. This summer, TransCanada completed its $10.2 billion acquisition of Houston-based Columbia Pipeline Group, giving it a link to a new source of shale gas. Two years ago, Kinder Morgan consolidated its affiliates into one company in a $44 billion transaction.
In June, Energy Transfer Equity and Williams Cos. of Tulsa scuttled a rocky $33 billion merger after nine months of work.
Enbridge operates the longest crude oil and liquids transportation system across Canada and the United States; it also owns and operates Canada’s largest natural gas distribution company, which serves Ontario, Quebec and New York state. And it has been building and buying up gas plants, pipelines and wind farms from Texas to West Virginia.
Analysts said Spectra made an attractive target because of one specific web of pipelines, the Texas Eastern Transmission lines, which run for 9,000 miles in total and stretch from the southern tip of Texas to New York City, connecting Gulf Coast producers to lucrative markets in Indiana, Ohio, Pennsylvania and New York.
Under the merger agreement, Enbridge shareholders would control 57 percent of the combined company. In the all-stock deal, Spectra shareholders will get slightly less than one share in the combined company for every share they own in Spectra.
Shares of Spectra closed at $41 on Tuesday, up $4.85, or 13 percent, over Friday; Enbridge closed at $43.06, up $2.07, or 5 percent.
The new company will keep the Enbridge name and Calgary headquarters. Enbridge has 11,000 workers, half in the U.S. and many in Houston. Spectra employs about 6,000, including 1,000 in Houston,
The companies said the merger would save them about $415 million a year, but executives said it was too soon to spell out specific cuts and jobs losses that are likely to follow. Both Monaco and Spectra CEO Greg Ebel said they were committed to Houston and would keep natural gas operations here.
“Al and his team have a big presence in Houston today. That won’t change,” Ebel said. “We’ll continue to be major players in the community. And we’ve made commitments to continue to provide the charity and community activities we have in the past. That was not a negotiating term. That is how we operate.”
Spectra said it donated $9.2 million to agencies in North America in 2015.
The companies don’t share many overlapping assets, the CEOs said. Spectra’s pipelines are mostly gas; Enbridge’s, mostly liquids.
“The last thing you want to be focused on is getting rid of people who have driven that franchise,” Monaco said.