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Inter Pipeline's Heartland Petrochemical Complex under construction in Fort Saskatchewan, Alta., on Thursday, January 10, 2019.

JASON FRANSON/The Canadian Press

Inter Pipeline Ltd.’s board of directors is adopting a new approach in response to Brookfield Infrastructure Partners L.P.’s hostile takeover bid, with independent directors launching a strategic review that may ultimately recommend a sale of the company.

To date, Inter Pipeline’s board IPL-T has preferred to privately reject takeover offers. The board turned down a $30-per-share offer in 2019, and also quietly refused Brookfield’s BPY-UN-T approaches last fall that were priced between $17 and $18.25 per share.

But by going public with its bid, now worth $16.50 per share, Brookfield has put the board in the hot seat and forced directors to justify why they will not entertain a deal despite struggling operations and a sagging share price.

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In response, Inter Pipeline is now saying it will weigh all options.

“Acting in the best interests of the company and its shareholders, the board, consistent with its fiduciary duties, will evaluate a broad range of options, including exploring a possible corporate transaction, while continuing to seek a partner for a material interest in the Heartland Petrochemical Complex,” the company said in a statement Thursday.

Many analysts have argued that Brookfield’s bid is around a fair price, and some have noted that investors are open to change.

“Status quo is not an option” for Inter Pipeline, RBC Dominion Securities analysts wrote in a note to clients last week. “Based on our discussions with investors, we believe that there will be support for some sort of initiative to surface shareholder value, whether that be a sale to Brookfield Infrastructure, a sale to another party or an attractive partnership for Heartland.”

Brookfield Infrastructure currently holds securities that amount to a 19.65-per-cent stake in the energy infrastructure company and approached Inter Pipeline’s board about a full takeover last fall.

Frustrated after being rebuffed, Brookfield went public last week with its takeover proposal. At the offer price of $16.50 a share, 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.

Inter Pipeline’s board originally said very little after the bid was made public, simply noting that the conditional bid was below what it believed was the company’s intrinsic value. The board also said it would make a formal recommendation to shareholders if a formal offer was ever made.

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That stance has now morphed into a strategic review led by Margaret McKenzie, who chairs Inter Pipeline’s audit committee and was previously a founder of Range Royalty Management Ltd., which acquired oil and natural gas royalties in Western Canada.

Before Brookfield’s bid was made public, Inter Pipeline’s stock price had 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 propane into polypropylene plastic pellets used for scores of products, including children’s toys. 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.

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