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Inter Pipeline Heartland petrochemical complex near Fort Saskatchewan Alta., March 9, 2021.JASON FRANSON/The Globe and Mail

Inter Pipeline Ltd. is talking up the potential profits from its major bet on a petrochemical plant, in hope of finding a project partner, after its board of directors rejected Brookfield Infrastructure Partners L.P. ’s hostile takeover bid.

The company’s $4-billion Heartland petrochemical plant will convert Alberta propane into polypropylene plastic pellets that are widely used in everyday goods, including children’s toys, but its cost overruns and construction delays have hit Inter Pipeline’s share price. The project is still under construction and won’t be operational until 2022.

Despite the setbacks, Inter Pipeline chief executive Chris Bayle argues the plant could be more lucrative than the company originally hoped. The spread between the cost of propane and the market price for pellets has widened significantly, which could result in better-than-expected profits.

“The current margins that we’re seeing are frankly fantastic,” he said in an interview. “Even at a five-year average [for this spread], Heartland is very profitable.”

In a takeover circular rejecting Brookfield’s bid, Inter Pipeline said that Heartland could make more than $1-billion in annual earnings before interest, taxes, depreciation and amortization (EBITDA) under short-term contracts at current market prices. The company has previously disclosed an expected annual profit in the range of $450-million to $500-million.

While the project has hurt Inter Pipeline to date, Bank of Nova Scotia analyst Robert Hope told clients that the company is making a valid argument. “The board believes that the value of Heartland Petrochemical Complex (HPC) is not properly reflected in Brookfield’s offer. We agree with this, as the market is discounting the various uncertainties that will persist until full run-rate EBITDA is achieved,” he wrote in a research note.

Brookfield’s bid is worth $16.50 per share, equating to $5.7-billion for the 80 per cent of Inter Pipeline that it does not currently own. Brookfield is willing to pay a maximum cash consideration of approximately $4.9-billion. The remainder will be in shares.

The rejection from Inter Pipeline’s special committee follows Brookfield’s formal takeover bid in February, which forced the board to respond within 15 days. Tuesday’s decision was largely expected because Inter Pipeline recently launched a strategic review in response to the takeover bid, and its directors need more time to conduct a thorough study of the company’s options.

“We believe that superior offers or alternatives may emerge prior to the scheduled expiry of the hostile bid, which is not until June 7, 2021,” Inter Pipeline wrote in a statement Tuesday.

Inter Pipeline has been building the Heartland facility for more than three years and it has been unsuccessful in finding a partner for the project since it started looking in 2019. Mr. Bayle, the CEO, believes that could change in the next three months.

“COVID materially affected almost every business that wasn’t either shipping packages or making gowns or masks. It was a very difficult environment for industrials last year,” he said. But with the global economy quickly turning around, petrochemical companies are in much better shape – plus, they can partner on a plant that already has adequate funding in place.

Many analysts have argued that Brookfield has a good chance of winning the takeover battle – in part because it already owns a stake in Inter Pipeline. However, they have also acknowledged that Brookfield may have to pay more, and one of the best ways for Inter Pipeline to make this happen is by rejecting Brookfield’s opening offer.

Brookfield has offered $16.50 per share, and Inter Pipeline’s stock closed at $18.21 Tuesday.

Tuesday’s rejection isn’t the first time Brookfield has been rebuffed by Inter Pipeline. The target’s board also refused Brookfield’s approaches last fall, which were priced between $17 and $18.25 per share. In takeover filings, Brookfield noted that Inter Pipeline previously said a palatable takeover price would be more than $24 per share.

The share portion of Brookfield’s bid would see Inter Pipeline receive stock in Brookfield Infrastructure Corporation, whose shares are structured to provide a return that is equivalent to Brookfield Infrastructure’s LP units, but have a different tax treatment. Though the two sets of shares are interchangeable, they currently trade at slightly different values, and Inter Pipeline argues this could hurt investors who tender their shares to Brookfield’s bid.

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