Pembina Pipeline Corp. agreed to acquire Kinder Morgan Inc. subsidiary Kinder Morgan Canada Ltd. and the U.S. portion of the Cochin condensate pipeline system for about C$4.35 billion.
The deal values Kinder Morgan Canada at about C$2.3 billion, or C$15.02 per share, according to an Aug. 21 news release from Pembina. Pembina would acquire Kinder Morgan Canada's restricted voting shares and Kinder Morgan Canada Limited Partnership's class B units for 0.3068 of a Pembina common share, a 32% premium, Pembina said. The acquisition also includes the 70% majority voting interest held by Kinder Morgan and the assumption of preferred shares and net debt.
Pembina's subsidiary Pembina U.S. Corp. would acquire all outstanding membership interests in Kinder Morgan Cochin LLC, which holds the U.S. portion of the Cochin system, for cash consideration of US$1.55 billion.
As a result of the deal, Pembina would own the full cross-border Cochin system, the Edmonton crude oil storage and terminal business, and a bulk storage and export/import business called Vancouver Wharves. The assets are mostly underpinned by long-term, fee-for-service, take-or-pay contracts, and are expected to contribute about C$350 million to adjusted EBITDA in 2019.
The 2,900-kilometer Cochin system runs from Chicago to Fort Saskatchewan, Alberta, and has a design capacity of up to 110,000 barrels per day. It connects Pembina's assets in the Channahon, Ill.; Bakken Shale; and Edmonton, Alberta, areas, and has connections to markets in Mont Belvieu, Texas; Conway, Kan.; and Edmonton. Pembina may connect the eastern leg of the system to its assets and markets in Sarnia, Ontario.
With the connections, the Cochin system would support Pembina's condensate infrastructure in Western Canada and extend its reach into the U.S., the company said. The U.S. portion of the system runs from the Kinder Morgan station near Riga, Mich., to the international boundary near Maxbass, N.D.
The deal comes two months after Kinder Morgan Canada's strategic review, when the company had opted to remain a standalone public entity even after it divested its largest asset, the Trans Mountain pipeline system. At the time, the company said there were no satisfactory transactions available.
Parent company Kinder Morgan said it plans to use deal proceeds to reduce debt. The cash proceeds from the Cochin sale alone would result in a net debt-to-adjusted EBITDA ratio for Kinder Morgan of about 4.4x, from 4.6x, by the end of the year, if the deal closes by then.
The deals are scheduled to close in the fourth quarter, or in the first half of 2020. TD Securities Inc. is the financial adviser to Pembina, while Stikeman Elliott LLP is the Canadian legal adviser. Latham & Watkins LLP is acting as U.S. legal adviser. J.P. Morgan served as financial adviser to Kinder Morgan Canada, with Blake Cassels & Graydon LLP acting as Canadian legal adviser and Bracewell LLP acting as U.S. legal adviser.
In addition, Pembina raised its monthly common share dividend rate by 1 Canadian cent per share, or about 5%.
