Inter Pipeline walks away from friendly Pembina merger, will pay $350-million break fee - The Globe and Mail

Inter Pipeline's Heartland Petrochemical Complex, in Fort Saskatchewan, Alta., on Jan. 10, 2019.

JASON FRANSON/The Canadian Press

Inter Pipeline Ltd. is abandoning its friendly merger with Pembina Pipeline Corp., opening the door to a deal with rival bidder Brookfield Infrastructure Partners LP.

To walk away, Inter Pipeline will pay Pembina a $350-million termination fee, also known as a break fee. The payment was negotiated when Pembina emerged as a white knight in late May to help block Brookfield’s hostile takeover bid.

Brookfield has since raised its takeover price twice and also given Inter Pipeline shareholders the option to take their payout in cash if they favour Brookfield’s bid. Pembina’s friendly deal was to be paid solely in Pembina shares, and Pembina would not budge on the offer price it had agreed to in May.

Brookfield’s latest offer comes in two forms: Inter Pipeline shareholders can elect for $20 a share in cash, up from its previous bid of $19.50 a share, or they can take some shares of Brookfield Infrastructure Corp. at an elevated price instead of cash.

BIPC was created in 2020 to broaden the company’s investor base and shareholders who are limited in the types of securities they can own; its shares are effectively the same as the Brookfield Infrastructure’s limited partnership units.

When the most recent offer was made, Brookfield’s stock portion was worth $23.85 for every Inter Pipeline share. However, Brookfield is only willing to pay a maximum of 32 per cent of its total purchase price in shares, and BIPC’s shares have also dropped eight per cent since the offer was made.

Two leading proxy advisers, Institutional Shareholder Services and Glass Lewis, both recommended Inter Pipeline investors vote against the Pembina bid.

While Inter Pipeline’s board has scrapped its support for Pembina’s deal, its directors have yet to fully embrace Brookfield’s offer. In a statement Monday, Inter Pipeline said it is “open to engaging with Brookfield in an effort to reach a mutually agreeable transaction in the best interests of shareholders.”

Brookfield’s shareholder vote is set for August 6.

The battle for Inter Pipeline has been heated from the very beginning. Brookfield started building a position in Inter Pipeline in 2020 and privately approached the target’s board about a deal last fall, but was repeatedly rebuffed. Brookfield then went hostile with a bid worth $16.50 in February.

Many analysts believed Brookfield was likely to face little competition in its pursuit of Inter Pipeline, but Pembina emerged as a white knight in May, agreeing to an all-share deal worth $8.3-billion. Brookfield’s original hostile bid was worth $7.1-billion.

Brookfield and Pembina ended up taking each other to court, with both sides filing arguments with the Alberta Securities Commission.

The arguments were heard in early July and the ASC ultimately ruled against Brookfield by raising the percentage of shares that must be tendered to Brookfield’s hostile takeover bid. Pembina had alleged Brookfield was using “coercive tactics” to win the takeover battle.

Before the ruling, Brookfield needed the support of a simple majority of Inter Pipeline’s independent shareholders, but it will now need the support of 55 per cent under a modified tender condition.

The ASC also shot down Brookfield’s request to have the potential $350-million break fee to Pembina scrapped.

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Inter Pipeline walks away from friendly Pembina merger, will pay $350-million break fee - The Globe and Mail
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