The fight for Inter Pipeline goes on

August 2021 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

August 2021 Issue

Brookfield Infrastructure Partners LP and Pembina Pipeline Corp have both tabled competing bids for Canada’s fourth-largest pipeline company, Inter Pipeline Ltd.

The struggle for Inter Pipeline began in early 2021. In February, Brookfield made a C$7.1bn offer to buy all of Inter’s outstanding shares, but was spurned by the company’s board, which set up a team to review other options.

On 1 June, Pembina announced it would be acquiring Inter Pipeline in an all-stock deal worth C$19.25 a share for a total value of C$8.3bn. It plans to add the company to its extensive infrastructure assets and create one of Canada’s top oil & gas transportation companies in the process. Pembina’s deal values Inter at about C$15.2bn, including debt, with its shareholders expected to own 72 percent of the combined company and Inter shareholders owning the rest.

However, in early June, Brookfield announced it would make a cash-and-stock offer valued at C$19.75 per share, representing a 4.4 percent premium to Pembina’s all-stock proposal, and take it directly to Inter’s investors.

The bidding war for Inter’s oil & gas pipelines, mainly in Western Canada, as well as storage facilities and processing plants, comes as North American oil futures touched a more than two year high in early June. Inter is building a C$4bn petrochemical complex near Edmonton, Alberta, which is due to become operational in early 2022. Pembina scrapped plans for a similar petrochemical plant last December, citing uncertainty caused by the COVID-19 pandemic.

In a statement acknowledging Brookfield’s bid for Pipeline, Inter’s board of directors continued to unanimously recommend the Pembina transaction to its shareholders, which the company noted would be highly strategic for both parties. Inter reiterated its recommendation, first made in March, that shareholders reject Brookfield’s earlier bid, saying the unsolicited Brookfield offer significantly undervalued the company.

Under the terms of the Pembina deal, Inter shareholders would benefit from a 175 percent increase to their monthly dividend upon closing and share in significant annual synergies. The Pembina transaction would also enable shareholders to participate directly in the cash flow growth from the Heartland Petrochemical Complex that is expected to enter service in early 2022, as well as Pembina’s extensive investment opportunities.

However, the Pembina offer pledged to deliver C$150m to C$200m in cost savings, which has created some concerns about potential redundancies. In a statement reinforcing its offer for Inter, Pembina committed to supporting meaningful job creation. The company noted that a number of its proprietary growth opportunities are in advanced stages and it expects to make further announcements shortly. Additionally, it noted that upon completion of the deal, there are $450m of readily actionable projects, which alone could generate approximately $100m of incremental adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA).

Under the terms of the Pembina deal, Inter Pipeline shareholders would receive 0.5 shares of Pembina for each share of Inter Pipeline held. This represents a value of $19.45 per share, or a 45 percent premium to the unaffected price of the company’s shares, based on the closing price of Pembina’s common shares on 31 May 2021.

“Along with the Inter Pipeline Board of Directors, we are very excited about this opportunity to combine our companies and create one of the largest infrastructure companies in Canada, with vast potential to further benefit all of our collective stakeholders,” said Mick Dilger, president and chief executive of Pembina. “The Strategic Combination is a synergistic merger of complementary assets that is expected to lead to opportunities for significant expansion, customer benefits, material efficiencies and enhanced valuation – all of which are expected to benefit the shareholders of the combined company, and none of which can be realized with Brookfield.”

Brookfield, the largest shareholder of Inter with a 9.75 percent stake in the company, said it was “disappointed by the seeming lack of fiduciary responsibility shown by the decision of IPL Board of Directors to support an inferior proposal by Pembina”.

Richard Summerfield