Inter Pipeline tells shareholders to reject revised Brookfield hostile bid

Inter Pipeline asked shareholders June 3 to reject the increased hostile takeover bid from Brookfield Infrastructure Partners and to instead back its deal with Pembina Pipeline in a major combination of Canadian midstream players.

Inter agreed to be acquired by Pembina on June 1 for $6.9 billion in an all-stock deal, but Brookfield responded a day later with plans for a more than $7 billion offer that would include 74% cash. However, a roughly $290 million break-up fee potentially owed to Pembina would offset the slightly higher offer for the Canadian oil, gas and petrochemical midstream company.

The Inter Board of Directors said in a June 3 statement that it considers the Pembina deal "financially superior and in the best interests of Inter Pipeline and its shareholders."

"Both proposals had substantially equivalent 'headline numbers,'" Inter said. "However, the Inter Pipeline board was of the view that the proposed Pembina transaction provided considerable incremental value for shareholders."

Inter Pipeline said its assets mesh well with Pembina, including eliminating much of the reliance on third-party pipelines, and create many new synergies. Inter Pipeline shareholders would benefit from a 175% increase to their monthly dividend upon closing, the board noted. The deal also would benefit shareholders with the longer-term cash flow growth from the Heartland Petrochemical Complex in Alberta that is expected to come online early in 2022.

Brookfield plans to formally file its offer no later than June 4, and Inter Pipeline emphasized that its shareholders do not have to take any action in order to reject the hostile bid. Pembina has not commented since Brookfield announced its revised hostile bid, but Pembina may be waiting for Brookfield to submit its formal offer first. Pembina can choose to stand pat or to slightly increase its deal with Inter.

As of now, Inter Pipeline shareholders would have until June 7 to choose between the quicker cash from Brookfield or the longer-term investment and dividends with Pembina.

Seemingly aware that Inter Pipeline planned to stick with Pembina, Toronto-based Brookfield took its hostile offer directly to the Inter shareholders. Brookfield has acquired nearly 10% of Inter Pipeline's voting shares to become its largest stockholder since share-buying began early this year. Including its own shares, Brookfield needs two-thirds shareholder support to win the deal.

Because Brookfield plans to waive a shareholder vote, Brookfield said it could close the deal in about 20 days compared with Pembina's plans to close in the fourth quarter after acquiring shareholder support and Canadian regulatory approval.

Inter had previously rejected a hostile takeover bid from Brookfield for $5.6 billion back in February, calling it a lowball offer. Inter's resulting decision to invite other potential offers as part of a strategic review opened the door for Pembina.

The all-stock deal would give the combined Pembina a total of 6.2 million boe/d of Canadian crude oil, natural gas and NGL pipeline capacity with each company contributing its existing 3.1 million boe/d of capacity. Inter's 6 million barrels of storage capacity means an enlarged Pembina would have 38 million barrels of storage.