Brookfield Infrastructure Partners LP Brookfield Infrastructure Partners LP is once again revising its hostile takeover bid for Inter Pipeline Ltd., this time choosing to let shareholders opt for a cash takeover.
Brookfield is Inter Pipeline’s largest shareholder, and in February it launched a hostile bid for Inter Pipeline valued at $ 16.50 per share, valuing the target at $ 7.1 billion. At the time, Brookfield was willing to pay a maximum cash consideration of around $ 4.9 billion, with the remainder to be paid in shares.
In early June, Pembina Pipeline Corp. Pembina Pipeline Corp. established itself as a white knight with an $ 8.3 billion takeover bid on Inter Pipeline. Importantly, the offer received the blessing of Inter Pipeline’s board of directors.
To counter this, Brookfield raised its own offer a day later to $ 8.47 billion based on its closing price before the announcement. Brookfield also said he was prepared to pay up to $ 5.6 billion in cash.
But now Brookfield is revising its offer again and will give Inter Pipeline shareholders the option of receiving all the cash, if they wish. In other words, there is no longer a limit on the cash portion of the transaction.
The belated change of mind raises questions about Brookfield’s confidence in his chances of winning the takeover battle. However, Brookfield said it was simply responding to comments from investors.
“The revised offer reflects the feedback we have received from many Inter Pipeline shareholders who support our offer but have indicated a preference for this revised structure, particularly in contrast to the less certain, cashless alternative offer”, Brookfield wrote in an email to The Globe.
Pembina and Brookfield Infrastructure stock prices were mostly flat Friday at noon, as was Inter Pipeline stock, which is trading around $ 20.30 a share.
In an emailed statement, Pembina said the latest offer review “does not change the fact that Pembina’s offer is superior in value with greater potential for Inter Pipeline shareholders.”
If Pembina’s offer is successful, its shareholders will own 72 percent of the combined company and Inter Pipeline shareholders will own the remaining 28 percent. The merged company would also be led by the Pembina management team.
Pembina and Inter Pipeline operate similar businesses in different parts of Western Canada. Pembina therefore markets the takeover as a game of geographic diversification. “Scale, financial strength and diversity will enable the combined companies to achieve projects that they could not achieve on their own,” Pembina wrote in an investor presentation.
By offering shares, Pembina seeks to keep its balance sheet strong – however, Inter Pipeline also has approximately $ 5 billion in debt on its books.
Although Brookfield is now increasing the cash portion of its offering, the company believes it can do so comfortably without burdening its balance sheet. “We are delighted to tailor our offering to the interests of shareholders and to be able to do so given our strong liquidity position,” the company wrote in its email to The Globe.
Brookfield is also hoping to convince the Alberta Securities Commission to speak out against the termination fees Inter Pipeline will have to pay Pembina if their friendly merger fails. The hearing is set for July 7 and Brookfield has said it will increase its offer if the breach fee is removed.
Unlike Brookfield’s cash offer, Pembina is hoping to win Inter Pipeline shareholders with a juicier dividend. As part of its takeover bid, Pembina increased its own monthly dividend from 1 cent per share to 22 cents. If the takeover is approved, Inter Pipeline shareholders would see their current monthly payment of 4 cents jump 175% – to 11 cents, for half a Pembina share – immediately after the close.
Pembina expects the takeover to generate pre-tax synergies worth $ 150-250 million per year, the majority of which is expected to come from lower general, administrative and operating expenses, which tends to lead to job losses.
Inter Pipeline was brought into play for a takeover after its stock fell sharply due to weak oil and gas prices, and due to ongoing cost overruns and delays at its Heartland complex near Edmonton. The company has been building the petrochemical plant for more than three years and has not been able to find a partner on the project. The Heartland facility will convert Alberta’s propane into polypropylene plastic pellets for manufacturers.
With files from the Canadian Press
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