The breach charges “threaten to enrich Pembina” to the detriment of Inter shareholders, Brookfield said in a statement Thursday, announcing a legal challenge filed with the Alberta Securities Commission. Brookfield said if it succeeds in getting rid of or reducing the termination fee, it will increase its competing takeover bid on Inter by an equivalent amount.
“These breakage fees were accepted in the face of a significantly superior proposal submitted by Brookfield Infrastructure to the IPL special committee,” Brookfield said.
The Brookfield Challenge is the latest twist in a months-long battle for Canada’s fourth-largest pipeline company. This follows years of failed attempts to build major projects like TC Energy Corp’s Keystone XL. and Energy East of Enbridge Inc., potentially making existing lines more valuable. Inter has pipeline infrastructure throughout Western Canada, connecting oil and gas producers with domestic and foreign customers.
In February, the subsidiary of private equity giant Brookfield Asset Management Inc. made a $ 7.1 billion offer for Inter that was rejected by the board of directors. Brookfield softened its offer a day after Pembina’s deal was announced to buy Inter on June 1. Inter’s board prefers the deal in Pembina shares, which is currently worth around $ 8.5 billion, while Brookfield’s hostile offer is 74% in cash.
Inter has defended the termination fee as a “function of protecting customary agreements,” according to an emailed statement.
“Faced with a higher bid with a bigger upside for Inter Pipeline investors, Brookfield shares are desperate and unnecessary,” Pembina said in a statement.
CIBC Capital Markets said that while there is “no clear criteria as to the suitability of a termination fee,” termination fees of 4.5% to 5% of equity have raised Concerns in the past, noting that the deal with Pembina is 4.2 percent.