Inter Pipeline Ltd .’s board of directors is throwing its support behind a takeover bid from Brookfield Infrastructure Partners LP , capping off a tense battle that saw both companies take each other to court.
Inter Pipeline’s support follows the board’s decision Monday to abandon its backing of a friendly merger with Pembina Pipeline Corp., which triggered a $350-million termination fee to be paid to Pembina, and also comes after Brookfield raised its takeover bid a second time.
“After thoroughly considering the alternatives, the board has concluded that the value and flexibility inherent in the revised Brookfield offer, including the significant cash component of the offer and the option for a potential tax-deferred rollover for certain Canadian shareholders, makes it appropriate to recommend acceptance of the revised Brookfield offer to our shareholders,” Margaret McKenzie, Inter Pipeline’s board chair, said in a statement late Tuesday.
The board’s support comes nearly a year after Brookfield was privately rebuffed by Inter Pipeline after floating a takeover, and five months after Brookfield went hostile with its bid. Inter Pipeline’s board also backed a friendly merger with Pembina in late May.
While Inter Pipeline walked away from the Pembina deal on Monday, it did not immediately back Brookfield’s bid, even though no other offers were on the table. In its statement Tuesday, Inter Pipeline noted “it was apparent at the time of termination that the Pembina arrangement was not garnering the requisite support of voting Inter Pipeline shareholders.”
Brookfield will be responsible for paying the $350-million termination fee if its bid gets enough Inter Pipeline shareholder support at a vote scheduled for Aug. 6.
While Brookfield now looks likely to win the takeover battle, its own shareholders have been selling the stock ever since it raised its bid for a second time in mid-July, giving Inter Pipeline shareholders the option to take their payout all in cash. Brookfield Infrastructure’s corporate shares are down 16 per cent since.
Because Brookfield investors have signalled some discomfort, some analysts have wondered if certain Inter Pipeline assets could be sold to Pembina to make the deal a more manageable size.
In a note to clients Monday, RBC Dominion Securities analyst Robert Kwan said he is monitoring whether “a transaction involving a split of the assets with Pembina might come together, whether that be as part of a revised Brookfield Infrastructure offer or following the close of a sale of Inter Pipeline to Brookfield.”
When Brookfield updated its offer in mid-July, the company disclosed it had previously sent a letter to Pembina’s chief executive indicating a willingness to acquire some “lower risk, lower return assets.” Meanwhile, in its merger circular, Pembina disclosed it originally approached Inter Pipeline about a smaller deal for “certain assets” after Brookfield launched the hostile bid.
Brookfield’s current offer comes in two forms: Inter Pipeline investors can take $20 for each of their shares, up from its previous bid of $19.50 a share, or take some shares of Brookfield Infrastructure Corp., known as BIPC, at an elevated price instead of cash. BIPC was created in 2020 to broaden Brookfield Infrastructure Partners’ investor base because some shareholders are limited in the types of securities they can own; its shares are effectively the same as Brookfield Infrastructure’s limited partnership units.
When the most recent offer was made, the portion of the deal that involves Brookfield shares 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.
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