This marks the biggest acquisition in the oil and gas sector since 2014.
In a deal that is set to create the largest North American energy infrastructure company, Canada’s Enbridge Inc. has disclosed its intention of acquiring Houston based Spectra Energy Corp in an all-stock deal valued at nearly $28 billion (C$37 billion).
This marks the most significant takeover bid by an energy infrastructure company since gas and oil prices crashed during the middle of 2014. The deal only underscores the immense pressure that pipeline companies are under to merge as they struggle to cope with overcapacity and sliding prices, which have hacked away at dividends and has unnerved investors.
If this merger goes through, it will place Enbridge’s in a leading position, next only to Plains All American Pipeline LP, Kinder Morgan Inc. and Kinder Morgan Inc, which have all seen their stocks sink to the bottom over the last two years.
While Enbridge’s pipelines mostly send Canadian oil sands to refiners on the U.S. Gulf Coast, Spectra’s network ships natural gas to the U.S. East Coast.
As per Bruce McDonald, an antitrust expert at Jones Day, a law firm, the merger could sail through since it has no serious antitrust issues as the networks of both companies have “limited overlap”.
The U.S. Federal Energy Regulatory Commission did not comment.
With the news hitting the headlines, Spectra’s shares made their biggest jump in 3 years: they surged by 13% to $40.89. Despite this jump, and in spite of their recovery of nearly 50% since January, Spectra’s shares are still down by 16% from its July 2014 high of $43.
Enbridge’s U.S.-listed shares rose by 4.3% to $42.77 while its Toronto-listed shares bounced.
Under the terms of the agreement, for each share held, Spectra’s shareholders will receive 0.984 shares of the combined company. This essentially amount to $40.33 per share, which represents a premium of 11.5% to Spectra’s closing price last Friday.
Both companies have stated that the combined worth of the joined company will be $127 billion. Enbridge will take on $22 billion of Spectra’s debt and will issue around 694 million new shares to fund the deal.
Enbridge also stated that it plans to divest around $2 billion of its non-core assets over the next year.
The combined company will be headed by Enbridge’s CEO, Al Monaco and will be headquartered in Calgary.
Greg Ebel, Spectra’s CEO, will be its non-executive chairman.
“Over the last two years, we’ve been focused on identifying opportunities that would extend and diversify our asset base and sources of growth beyond 2019,” said Monaco in a statement.
Once the deal sails through, Enbridge shareholders will own nearly 57% of the combined company. The annual savings as a result of this merger is set to be C$540 million, the effect of which will be felt post 2018.
Credit Suisse Securities (Canada) and RBC Capital Markets were Enbridge’s financial advisers, while Sullivan & Cromwell LLP and McCarthy Tétrault LLP were its legal advisers.
BMO Capital Markets and Citi were Spectra Energy’s financial advisers and Wachtell, Lipton, Rosen & Katz and Goodmans LLP its legal advisers. Skadden, Arps, Slate, Meagher & Flom LLP advised Spectra on tax issues.
The deal is slated to close in early 2017.
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