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Construction continues on Inter Pipeline's Heartland Petrochemical Complex in Fort Saskatchewan, Alta., on Jan. 10, 2019.JASON FRANSON/The Canadian Press

Brookfield Infrastructure Partners LP has launched a hostile takeover bid for Inter Pipeline Ltd. , pitting the company’s largest shareholder against its board of directors, who refuse to sell at a depressed price.

Brookfield Infrastructure currently holds securities that amount to a 19.65-per-cent stake in the energy infrastructure company and approached its board about a full takeover last fall, but was ultimately rebuffed.

In a statement, Brookfield said Wednesday the talks were “positive in spirit,” but Inter Pipeline believed the company has an “intrinsic value far in excess of our assessment, largely driven by a more optimistic outlook of future growth and a recovery of commodity prices in excess of current market expectation.”

Frustrated, Brookfield is now going public with its takeover proposal, which is worth $16.50 a share. At this price, the 80 per cent position that Brookfield does not currently own is worth $5.7-billion, and Brookfield is willing to pay a maximum cash consideration of approximately $4.9-billion. The remainder will be in shares.

The offer values all of Inter Pipeline, including Brookfield’s stake, at $7.1-billion, and it amounts to a 23-per-cent premium to Inter Pipeline’s closing price Wednesday.

“Brookfield Infrastructure firmly believes that its offer is in the best interests of all IPL shareholders and that shareholders should have the opportunity to determine what is best for their investment,” the company said in a statement.

Inter Pipeline’s shares have been hard hit since the pandemic erupted last March, which is when Brookfield started accumulating its stake. The stock is down 38 per cent over the last year.

In July 2019, the Inter Pipeline board of directors turned down a $30 per share takeover bid from CK Infrastructure, a Hong Kong-based public company controlled by billionaire Li Ka-shing, according to sources advising both companies at the time. The Globe is not identifying the sources because they were not authorized to speak publicly.

The offer was at a 30-per-cent premium to where the company’s stock was trading at the time. In a press release in 2019, Inter Pipeline’s board described the offer as “conditional” and never confirmed the bidder was CK Infrastructure. Advisers to both companies said the Inter Pipeline board was concerned the Canadian government would block the sale of the utility to an entity based in Hong Kong.

Since then, Inter Pipeline’s stock price has declined sharply due to weak oil and gas prices and ongoing cost overruns and delays at the planned $4-billion Heartland petrochemical plant. The company has been building the facility near Edmonton for more than three years, and has been unsuccessful in finding a partner on the project.

The Heartland facility will convert Alberta propane into polypropylene plastic pellets for manufacturers. Last May, 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.

If it buys Inter Pipeline, Brookfield would likely complete Heartland before selling it, according to analysts. In a press release on Wednesday, Brookfield said its offer represents a “compelling valuation, despite the uncertainty of the timely completion and commercialization of the Heartland petrochemical complex anticipated by the company within the next two years.”

Before Brookfield’s bid, analysts were waiting to see if Inter Pipeline would line up a partner for the Heartland project, which would lower the capital required from the firm. A large petrochemical company could also add marketing and operating assistance.

While Inter Pipeline’s shares have suffered of late, oil prices have seen stronger fundamentals lately. There are now even calls that global oil supply could be in shortfall by 2025, which could boost crude prices even more – and ultimately benefit pipeline companies.

In a statement Thursday, Inter Pipeline confirmed the talks with Brookfield last fall, which led to conditional takeover proposals in the range of $17 to $18.25 per share, but added that the company’s board “informed Brookfield that they did not reflect the intrinsic value of the company were not sufficiently pre-emptive to grant Brookfield exclusivity.”

Inter Pipeline added that a formal bid has not yet been made. When one is, “it will be reviewed by the board with its legal and financial advisors, and a formal recommendation by the board will be made to shareholders in due course.”

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