Brookfield Infrastructure wins bidding war for Inter Pipeline with enough shareholder votes

Brookfield Infrastructure Partners finally won its six-month bidding war to acquire Inter Pipeline for nearly $7 billion on Aug. 20 after surpassing the necessary shareholder voting threshold by the end-of-week deadline.

Brookfield said it received 65.6% to easily surpass the needed 55% support of outstanding Inter shares not already held by Brookfield by the Aug. 20 deadline. Brookfield had extended the deadline by two weeks after previously winning 52% of the outstanding shares.

Calgary-based Inter is a Western Canada oil and gas midstream company that also has expanded more into the petrochemical sector of late.

The voting result is the culmination of a long hostile takeover bid that looked like it would lose out to Pembina Pipeline before Brookfield upped its bid, pressuring Inter to essentially break off its engagement to Pembina and recommend that its shareholders instead support the Brookfield offer.

Brookfield, which quickly became Inter's largest shareholder after it first publicized its plans in February, has repeatedly said it saw value in better operating an underachieving Inter as the industry emerges from the ongoing coronavirus pandemic. Brookfield offered a quicker closing date and up to 100% cash for Inter shareholders versus Pembina's all-stock deal. Inter already has paid a roughly $280 million breakup fee to Pembina.

Whereas Pembina sought to consolidate the Western Canadian pipeline sector, Brookfield plans to take Inter private and eventually sell assets deemed non-core. Energy analysts have pointed to Inter's newly completed Heartland Petrochemical Complex, which is yet to undergo startup, as a major asset that could be put up for sale. And Pembina could even look to buy some of Inter's assets from Brookfield.

Brookfield said it will file a mandatory extension of its offer until Sept. 3 to allow Inter's remaining shareholders time to tender, and to let shareholders decide what percentage of cash they want to receive in return.

Brookfield is the infrastructure arm of the larger Brookfield Asset Management.

A long bidding war

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

In July, the Pembina-Inter deal had 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.

Prior to late July, Inter had rebuffed Brookfield's hostile bids, before Pembina entered the equation as an apparent white knight at the end of May. However, Brookfield's persistence eventually won out.

Brookfield had previously extended its offer deadline from July 13 to Aug. 6, and also sweetened its proposal.

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.

As such, the Alberta Securities Commission ruled in July that Brookfield would need to win 55% of the outstanding shares not controlled by Brookfield.