Brookfield extends deadline for Inter Pipeline hostile takeover to Aug 6

Brookfield Infrastructure Partners said it will extend the deadline for its hostile takeover offer for Inter Pipeline from July 13 to Aug. 6 and consider sweetening its nearly $7 billion bid again after the Alberta Securities Exchange ruled against Brookfield and said Inter did not engage in any unfair defensive tactics in its pending deal to be acquired instead by Pembina Pipeline.

The fight pits Pembina and its bid to further consolidate the Canadian oil and gas midstream sector against Brookfield -- Inter's largest shareholder -- which sees value in better operating Inter Pipeline as the industry emerges from the ongoing coronavirus pandemic.

While Brookfield is offering a quicker closing date and up to 100% cash for Inter shareholders, Inter argues Pembina's almost $7 billion, all-stock deal is superior because of Pembina's higher dividend payments and the greater synergies and long-term value from combining their Canadian assets that mesh well together and unlock healthier profits.

Pembina and Inter shareholders are scheduled to vote on July 29 for their combination, ahead of the extended Brookfield deadline.

Brookfield had hoped the Alberta Securities Commission would eliminate a $280 million breakup fee owed to Pembina if the Inter deal fell through in favor of Brookfield's bid after Brookfield had called the penalty a poison pill designed by Inter to block Brookfield's efforts. However, the Canadian regulator ruled the breakup fee was not improper.

The regulator also required Brookfield to change its use of securities, known as total return swaps, which Pembina said Brookfield was using to secretly control more of Inter's shares in arrangements with third parties.

"Although Brookfield Infrastructure disagrees with aspects of the decision, it intends to revise the offer to comply with the terms of the decision," Brookfield said in a statement. "Notwithstanding that there has been no reduction in the break fee, Brookfield Infrastructure is considering further enhancements to the offer."

Brookfield had acquired nearly 10% of Inter Pipeline's voting shares to become its largest stockholder since share-buying began in March. However, Pembina contended Brookfield may control nearly 10% of the other other remaining shares through a series of cash-settled share swap transactions with an unknown swap dealer, referring to the "Brookfield block" vote.

Including its own shares, Brookfield needs two-thirds shareholder support to win the deal.

Fiercely contested

Previously on June 18, Brookfield extended its hostile takeover offer from June 22 to July 13 and raised the cash consideration to as much as 100% -- up from its previous offer of 74% cash -- and said it could raise its offer more if the Alberta Securities Commission waived Inter's breakup fee with Pembina.

Pembina and Inter called the regulatory ruling a victory.

"We remain firmly of the view that the Pembina arrangement will create a compelling new Canadian-based business with a great future, and represents the best outcome for our shareholders," said Inter Chairwoman Margaret McKenzie in a statement.

Inter emphasized that "every vote is crucial to overcome Brookfield's ownership block." And, demonstrating how closely contested the takeover bid is being waged, Pembina CEO Mick Dilger urged even the smallest of shareholders to vote.

"Pembina's transaction with Inter Pipeline represents a unique opportunity to create one of the largest energy infrastructure companies in North America," Dilger said. "We will have an unrivaled growth profile, an industry leading dividend, a broad portfolio of assets that have great synergies, and systems of scale in unconventional oil where we have the immediate potential to unlock further value for shareholders."