While Brookfield Infrastructure Partners LP's revised offer to take Inter Pipeline Ltd. private is a formidable alternative to Pembina Pipeline Corp.'s proposal, midstream industry experts disagreed over which party has the upper hand in the bidding war for the Canadian oils sands transportation company.
After Pembina announced a C$15.2 billion share-for-share agreement to acquire Inter Pipeline on June 1, Brookfield countered June 2 with a cash and share-based consideration valued at C$19.75 per Inter Pipeline share. The partnership said its improved offer represents a 4.4% premium to Pembina's offer, based on a value of C$18.91 per share as of market close June 1. The cash component of Brookfield's offer represents 74% of the total consideration, while Pembina does not have a cash component in its offer, Brookfield said.
Even more importantly, according to Credit Suisse managing director Andrew Kuske, Brookfield proposed closing the deal in about 20 days as opposed to the Pembina deal close in the fourth quarter.
"The biggest issue as of this morning is the speed of close. … That's probably the most critical factor on a near-term basis that we would see leaning toward success from a Brookfield perspective," Kuske said in an interview. "It's really about value, and it's really about consideration."
A Pembina-Inter Pipeline deal would also have a shareholder approval hurdle given that Brookfield owns about 10% of outstanding shares, analysts at energy investment bank Tudor Pickering Holt & Co. told clients June 1. This means "a two-thirds majority will be required from the remaining ~90% of shares outstanding if [Brookfield] votes against the deal," the analysts said.
Still, Pembina's built-in propane supply for Inter Pipeline's troubled Heartland petrochemical complex project could be a compelling argument for investors to choose long-term accretive value over cashing out immediately. Pembina President, CEO and director Michael Dilger called his company "the meat in the sandwich they were missing," referring to the project designed to turn propane into plastics components, expected to come online in 2022.
"I would expect Pembina to up its bid and maybe add in some cash but also would expect both bidders to be disciplined," CBRE Clarion Securities portfolio manager Hinds Howard said in an email. "If the board has engaged with Pembina and Pembina has identified synergies, I'd give them the edge to be the ultimate winner."
Credit Suisse's Kuske said the propane supply issue is an "interesting element" but not the "real battleground." Kuske noted that Pembina can also afford to walk away.
Inter Pipeline on June 1 urged shareholders to vote against a Brookfield takeover. Brookfield on June 2 questioned an "inappropriate" C$350 million break fee in the agreement between Inter Pipeline and Pembina given that it has already privately proposed its offer.
Inter Pipeline shares were up over 7% in midafternoon trading June 2.
"It's tough to really pick a winner at this point," ATB Capital Markets Managing Director Nathan Heywood said in an interview.
Howard noted in an earlier interview that it is the first time in about 10 years that two companies are vying for a third North American midstream provider. In 2012, Energy Transfer LP triumphed over Williams Cos. Inc. to complete a $9.4 billion merger with Southern Union Co.
