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Enbridge makes C$11.4B play to buy in all midstream sponsored vehicles

Enbridge Inc. proposed to acquire all of the outstanding equity securities of its sponsored vehicles Spectra Energy Partners LP, Enbridge Energy Partners LP, Enbridge Energy Management LLC and Enbridge Income Fund Holdings Inc. that it does not already own in separate deals valued at C$11.4 billion combined.

The transactions are expected to streamline Enbridge's corporate and capital structure by placing all of the company's core liquids and gas pipeline assets under a single entity, according to a May 17 news release. As a result, all of the equity security holders of the entities would have direct ownership in Enbridge.

Spectra Energy Partners unit holders would get 1.0123 Enbridge common shares for each Spectra Energy Partners unit they own, equivalent to a value of US$33.10 per unit. Enbridge Energy Partners unit holders are set to receive 0.3083 Enbridge common shares per unit, representing a value of US$10.08 per unit, while Enbridge Energy Management shareholders would get 0.2887 Enbridge common shares, or a value of US$9.44 per share.

Enbridge Income Fund shareholders would receive 0.7029 Enbridge common shares for each share they own, a deal value of C$29.38 per share.

Enbridge determined that the recent reversal of the income tax allowance policy by the Federal Energy Regulatory Commission, as well as impacts of the recently enacted federal tax reform law and market reactions in the master limited partnership realm, resulted in the uncertainty of these sponsored vehicles' stand-alone viability as cost effective sources of capital, the company said.

The offer ratios are based off the closing prices of each entity on May 16. The offer for Enbridge Income Fund represents a 5% premium to its closing price, the only offer with a premium.

Distributions for Enbridge Income Fund, Spectra Energy Partners and Enbridge Energy Partners may also be affected if the restructuring does not push through, with possible suspensions in distribution growth or distribution reductions as early as 2019, according to Enbridge.

Enbridge said the offers are non-binding, and have been approved by its board. The offers are not conditional on each other, with the exception of Enbridge Energy Management which is conditioned on the deal for Enbridge Energy Partners, according to the release.

Bank of America Merrill Lynch and Scotiabank are serving as financial advisers to Enbridge. McCarthy Tetrault LLP, Sullivan & Cromwell LLP and Vinson & Elkins LLP are acting as Canadian, U.S. and tax legal advisers, respectively.