Brookfield willing to sweeten offer for Inter Pipeline in bidding war with Pembina

Offer extended until July 13 and shareholders could take payment in cash

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CALGARY – Brookfield Infrastructure Partners LP is willing to sweeten its bid once again for Inter Pipeline Ltd. after a rival all-shares bid by Pembina Pipeline Corp. became the more lucrative option for investors.

Toronto-based Brookfield launched a hostile $13.5-billion takeover bid for Calgary’s Inter Pipeline earlier this year, but it has since been drawn into a bidding war as Calgary-based Pembina stepped in with a friendly deal that included a negotiated $350-million break fee for itself in case Brookfield wins the bidding war.

Brookfield is challenging that break fee at the Alberta Securities Commission (ASC) and on Friday said it is willing to increase its bid to $20.40 per Inter Pipeline share from $19.75 if the ASC finds in its favour and cancels the fee. The ASC did not respond to a request for comment Friday.

Brookfield also announced its offer would be extended until July 13 and that Inter Pipeline shareholders could receive their compensation in cash.


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“We believe an all-cash option provides superior value and flexibility for IPL shareholders, as well as enhanced certainty and a clean exit for those institutional and event-drive investors with near-term mandates,” Brookfield said in a release, adding that Pembina’s all-stock transaction would result in investors looking to sell after the deal closed.

“Conversely, the all-share consideration included in the alternative transaction would result in a substantial and protracted overhang on Pembina’s share price given monetization consideration for event-driven funds, select institutional shareholders and Brookfield Infrastructure’s $1.6-billion economic interest,” the company said.

Financial analysts have suggested Inter Pipeline shareholders sit back and let the bidding war play out.

Brookfield’s offer allows Inter Pipeline shareholders to get paid either in cash or a combination of 74 per cent in cash and 26 per cent in Brookfield shares, which National Bank of Canada Financial Markets analyst Patrick Kenny said implies a $19.63-per-share offer for Inter Pipeline. He noted that’s four per cent below the $20.36 offer presented by Pembina based on Pembina’s current share price.

“We recommend shareholders continue holding their IPL positions until the ASC provides its decision regarding the break fee,” Kenny said in a Friday research note.


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Pembina on Friday said its share-swap deal is better value in dismissing Brookfield’s updated offer.

“Today’s disclosure by Brookfield does not change the fact that the Pembina offer is superior in value with greater upside for IPL shareholders,” Pembina said in an emailed statement. “Brookfield also now acknowledges that their offer had structural issues and that the consideration is lower than previously represented in public.”

The value of Pembina’s share-swap when it first announced its friendly offer on June 1 was worth roughly $19.45 per Inter Pipeline share, or 17 per cent higher than Brookfield’s initial bid of $16.50 per share.

Brookfield responded at the time by increasing its bid to $19.75 per share, topping Pembina’s deal.

But rising equity values in the Canadian midstream industry have lifted Pembina’s fortunes in the bidding war.

The pipeline company has made a flurry of announcements this month that telegraph its growth prospects, including a plan this week to create a sprawling carbon-capture pipeline network with TC Energy Corp. called the Alberta Carbon Grid.

It has also announced a partnership with the Haisla Nation in Kitimat, B.C., to build an LNG project on the West Coast and a plan to bid for the Trans Mountain pipeline system.

These announcements and rising oil and gas prices have combined to help push the value of Pembina’s deal sharply higher. Pembina’s share price rose again to $40.72 on Friday, meaning its offer for Inter Pipeline is worth $20.36 per Inter share.

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