Inter Pipeline board supports sale to Brookfield Infrastructure Partners

Inter Pipeline Ltd. said July 27 it will support its sale to Brookfield Infrastructure Partners for nearly $7 billion, turning a hostile takeover bid into a friendly merger one day after Inter backed out of its nearly two-month-long engagement with Pembina Pipeline in favor of Brookfield's sweetened offer.

The bidding war had pit Pembina and its bid to further consolidate the Western Canadian oil and gas midstream sector against Brookfield -- Inter's largest shareholder -- which sees value in better operating Inter as the industry emerges from the ongoing coronavirus pandemic. Now, it increasingly looks like a consolidation of Canada's midstream energy assets will slow down with Brookfield as the apparent winner.

Previously, Brookfield had hiked its hostile bid from about $6.75 billion to more than $6.8 billion, higher than Pembina's all-stock deal of just more than $6.6 billion, but largely offset by the nearly $280 million breakup penalty now owed to Pembina.

The catch is Brookfield is offering a quicker closing date and up to 100% cash for Inter shareholders. Inter had previously argued Pembina's deal was superior because of Pembina's higher dividend payments, and the greater synergies and long-term value from combining their Canadian assets to unlock more profits.

After Brookfield's latest sweetener, Pembina opted not to raise its offer.

"After thoroughly considering the alternatives, the [Inter] Board has concluded that the value and flexibility inherent in the revised Brookfield offer, including the significant cash component of the offer and the option for a potential tax-deferred rollover for certain Canadian shareholders, makes it appropriate to recommend acceptance of the revised Brookfield offer to our shareholders," said Inter Chairwoman Margaret McKenzie in a statement late July 27.

Rather than enter into a formal merger agreement, Inter's board of directors has recommended shareholders support the pending offer made by Brookfield directly to the investors. Inter shareholders can vote through Aug. 6.

The Pembina deal increasingly looked in doubt after top proxy advisory firms Glass Lewis and Institutional Shareholder Services, called ISS, both said they favored the Brookfield offer, culminating in Inter deciding to recommend against the Pembina vote and, then, Pembina outright canceling the deal and agreeing to accept its breakup fee.

Before this week, Inter had rebuffed Brookfield's hostile bids that started in February, before Pembina entered the equation as an apparent white knight at the end of May. However, Brookfield's persistence eventually won out.

Brookfield extended its offer deadline from July 13 to Aug. 6, and also sweetened its proposal. Including its own shares, Brookfield needs two-thirds shareholder support to win the deal.

Brookfield has acquired nearly 10% of Inter's voting shares to become its largest stockholder since share buying began in March. However, Brookfield may control nearly 10% of the other remaining shares through a series of cash-settled share swap transactions with third parties, referring to the "Brookfield block" vote, making it easier to reach the two-thirds tally.