Canadian pipeline company building polypropylene complex finds white knight in competitor
Canada’s Inter Pipeline said on June 3 that a decision to recommend to shareholders a buyout plan by Pembina, an old mid-stream competitor, has been taken. Pembina's proposal followed an unwelcomed offer by a group of investors earlier this year.
Pembina had said the transaction is valued at approximately C$15.2 billion, including Inter Pipeline’s debt. Pembina and Inter Pipeline shareholders will own 72% and 28% of the combined company, respectively.
“As previously announced on June 1, 2021, Inter Pipeline and Pembina (…) have entered into an arrangement agreement providing for Pembina to acquire all of the issued and outstanding common shares of Inter Pipeline in an all-share transaction,” Inter Pipeline said in its statement.
The board of directors of Inter Pipeline “continues to unanimously recommend the Pembina transaction to Inter Pipeline shareholders, which is highly strategic for both parties” due to synergies and other potential, it said.
Pembina's offer includes dividend increase
If shareholders at Inter Pipeline accept Pembina’s offer, “they will benefit from a 175% increase to their monthly dividend upon closing,” the company said.
The transaction will also enable shareholders to “participate directly in the cash flow growth from the Heartland Petrochemical Complex” scheduled to start operations in early 2022, it said.
Inter Pipeline said on April 22 that the construction of the polypropylene facility will be completed by year’s end with commercial operations planned for 2022.
Pembina had contemplated a similar complex in partnership with Kuwait’s PIC but in recent months deferred the project amid volatility related to Covid-19.
Both Inter Pipeline's HPC as well as the site of Pembina's deferred project are near Edmonton, Alberta.
Brookfield’s new offer seen too similar
The proposed variation to the offer from an investor group named Brookfield appeared to be on substantially the same economic terms as the previous one on May 31 and this justified the decision to support the offer from Pembina, the statement said.
Independent directors reviewed the Brookfield proposal and the proposed Pembina transaction on May 31 “with the benefit of advice from their financial and legal advisors,” Inter Pipeline said.
“The Inter Pipeline Board was unanimously of the view that the proposed Pembina transaction is financially superior and in the best interests of Inter Pipeline and its shareholders,” it added.
“Both proposals had substantially equivalent ‘headline numbers,’ however, the Inter Pipeline Board was of the view that the proposed Pembina transaction provided considerable incremental value for shareholders,” it said.
Several media had reported on June 2 that Brookfield raised its bid to about C$8.5 billion, or higher than Pembina’s offer.
Pembina merger to create synergies
Pembina Pipeline announced on June 1 that it had entered into an agreement to buy Inter Pipeline in a share-for-share transaction worth C$8.3 billion.
Ths will create “a pro-forma enterprise value of C$53 billion and a diversified and integrated asset base that can support and grow an extensive value chain for natural gas, natural gas liquids and crude oil, from wellhead to end user,” it said.
Pembina said the merger will result in a “combination of highly connected and complementary assets, resulting in greater vertical integration, expanded customer service offerings, and enhanced global market reach.”
Near-term synergies worth C$150 million to C$200 million will immediately contribute to meaningful adjusted cash flow, it said.
Once the Heartland Petrochemical Complex is in full service, the combined company will “generate C$1.1 billion to C$1.4 billion of adjusted cash flow from operating activities after dividends annually,” Pembina added.
A bigger company will also have more capacity to carry on projects. “The combined company has visible and highly probable unsanctioned investment opportunities in excess of $6 billion.”
Dividend increase offered upon closing
Inter Pipeline said that shareholders will benefit immediately from an offer that provides a premium to the current trading price, an immediate 175% increase to their monthly dividend upon closing, and by sharing in the synergies and enhanced growth potential.”
The merger “will allow us and our customers to benefit from additional margin capture,” said Randy Findlay, Pembina's chair of the board of directors.
Pembina's senior executive team will lead merged company. “Representation from Inter Pipeline on Pembina's board of directors will be determined prior to closing,” Pembina said.
Pembina and Inter Pipeline officials plan to mail votes to shareholders by the end of June, the statement said. A special shareholder meetings will be held in mid-summer.
In addition to shareholder voting, the transaction is also subject to regulatory approvals. The companies expect to close the transaction in the fourth quarter of 2021, Pembina said.
(C$1 = $0.83)
By Renzo Pipoli