Brookfield hikes hostile takeover bid for Inter Pipeline to counter Pembina's surprise offer - The Globe and Mail

Brookfield Infrastructure Partners LP is raising its hostile takeover bid for Inter Pipeline Ltd. to $19.75 per share, topping the surprise offer Pembina Pipeline Corp. announced one day ago.

Brookfield originally approached Inter Pipeline about a takeover last fall, but the private talks went nowhere so Brookfield went public with a hostile bid worth $16.50 per share in February.

With Brookfield’s bid set to expire next week, Pembina announced a rival all-share takeover offer initially worth $19.45 on Tuesday. Unlike Brookfield’s approach, Pembina’s deal has the support of Inter Pipeline’s board of directors.

To counter, Brookfield, which is Inter Pipeline’s largest shareholder, has hiked its takeover price and reaffirmed its commitment to pay a majority of the purchase price in cash. Brookfield’s bid is worth $8.47-billion based on its closing price Tuesday, and it is willing to pay up to $5.6-billion in cash.

Pembina’s bid, meanwhile, would give Inter Pipeline shareholders 0.5 of a Pembina share for each share of Inter Pipeline they own. Based on Pembina’s closing share price Monday, the purchase price amounted to $19.45 a share. Because Pembina’s shares slipped nearly three per cent Tuesday, the total value of its bid temporarily dropped to $8.1-billion.

With Brookfield offering more cash than Pembina, Inter Pipeline shareholders will have to decide whether they want to cash out now or roll their stock over into a bigger pipeline company that pays a substantially higher dividend.

As part of its takeover bid Pembina raised its own monthly dividend by 1 cent a share to 22 cents, so if its takeover is approved Inter Pipeline’s shareholders would see their current monthly payout of 4 cents jump by 175 per cent – to 11 cents, for half a Pembina share – immediately upon closing.

Brookfield said Wednesday that it recently told Inter Pipeline’s board that it was willing to increase its bid to around $19.50 per share, but the board ultimately decided against that offer and backed Pembina’s instead.

Brookfield is now publicly questioning why the board backed the Pembina deal considering that its proposed synergies will likely lead to job losses. Pembina expects the takeover to deliver pretax synergies worth $150-million to $250-million annually, the majority of which are expected to come from lower general, administrative and operating costs

In its recent discussion with Pembina’s board, “Brookfield Infrastructure reminded Inter Pipeline’s representatives that it was a financial investor and, unlike a strategic investor, would not be seeking to generate significant cost synergies by eliminating duplicative jobs,” Brookfield said in a statement.

Before Brookfield’s bid in February, Inter Pipeline’s stock price had declined sharply owing to weak oil and gas prices, and continuing cost overruns and delays at the Heartland plant. The company has been building the petrochemical facility for more than three years, and had been unsuccessful in finding a partner on the project.

The Heartland facility will convert Alberta propane into polypropylene plastic pellets for manufacturers. In May, 2020, Inter Pipeline disclosed that its construction cost had jumped by half a billion dollars to $4-billion. The ready date was also pushed out, and Heartland is now expected to be fully operational in 2022.

Inter Pipeline’s board initially dismissed Brookfield’s hostile bid outright, arguing the company was worth significantly more money, but changed its tune shortly afterward and launched a strategic review that included continuing to search for a commercial partner for the Heartland complex northeast of Edmonton, as well as an outright sale of the company.

When the review commenced, many analysts assumed few other companies would be interested in taking over Inter Pipeline, so Brookfield was widely seen as the front-runner – though it would likely need to increase its offer.

Pembina’s all-share takeover bid is predicated on keeping its balance sheet in solid shape. Although Inter Pipeline has roughly $5-billion worth of debt on its books, which Pembina would absorb, on a conference call Tuesday Pembina chief executive Mick Dilger said that while a takeover would translate to higher debt in the near term, “when you start looking out to 2023, 2024 … those leverage metrics improve pretty substantially,” he said.

Rating agency DBRS Morningstar noted Tuesday that Pembina’s post-acquisition credit metrics will “weaken modestly” but added that it “does not expect the acquisition to have a material impact on Pembina’s financial profile.”

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Brookfield hikes hostile takeover bid for Inter Pipeline to counter Pembina's surprise offer - The Globe and Mail
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