Pembina Pipeline Corp. and Inter Pipeline Ltd. have entered into an arrangement agreement on June 1 for Pembina to acquire all of the issued and outstanding shares of Inter Pipeline in a share-for-share transaction, which values Inter Pipeline common shares at approximately CA$8.3 billion (US$6.9 billion), or $19.45 per share, based on the closing price of Pembina's common shares on May 31, 2021.
Inter's assets include over 7,000 km (4,300 miles) of pipelines and five million barrels of oil storage in Western Canada, as well as natural gas liquids' processing plants.
The deal comes nearly four months after Inter launched a strategic review as it fended off a CA$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 CA$19.45 per Inter share, a 10.8% premium as of the stock's Monday close.
Inter in March had asked shareholders to reject Brookfield's hostile bid of C$16.50 per share, saying the offer significantly undervalued it.
Brookfield then said it could raise the offer to as much as C$18.25 per share, but Inter told the investment firm it would be willing to start exclusive negotiations if it was offered C$24 a share.
Under the terms of the transaction, Inter Pipeline shareholders will receive 0.5 of a share of Pembina for each share of Inter Pipeline that they own. The consideration to be received by Inter Pipeline shareholders is valued at $19.45 per Inter Pipeline share based on the closing price of Pembina common shares on May 31, 2021, which represents a premium of approximately 17.8% to the value implied by the takeover bid announced by Brookfield Infrastructure Corp.
The transaction is valued at approximately $15.2 billion, including the assumption of Inter Pipeline's debt. Pembina and Inter Pipeline shareholders are expected to own 72% and 28% of the combined company, respectively. The combined entity will continue to be led by Pembina's senior executive team.
The companies expect near-term cost savings of C$150 million to C$200 million annually from the deal, and the transaction to add to adjusted cash flow per share.
Furthermore, once the Heartland Petrochemical Complex (HPC) is in full service, the combined company is expected to generate $1.1 billion to $1.4 billion of adjusted cash flow from operating activities after dividends annually, greatly enhancing its ability to fund existing and future capital investment.
By combining HPC with Pembina's industry leading 60,000 bbl/d of propane supply infrastructure in Fort Saskatchewan, long-term supply risk for HPC is eliminated, while further improving the possibility of a second such facility.
This deal is expected to create one of the largest energy infrastructure companies in Canada, with a pro forma enterprise value of $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. Furthermore, past and future investments by both companies will help access new demand markets for the Western Canadian Sedimentary Basin (WCSB), benefitting Pembina, its customers and the provinces of Alberta and British Columbia alike.
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