Enbridge’s crude oil pipeline system in Jones Creek, Texas. Source: Hart Energy
Spectra Energy Corp.’s (NYSE: SE) stock jumped more than 13% in early trading Sept. 6 following the announcement of the company’s $28 billion sale to Enbridge Inc. (NYSE: ENB).
The all-stock deal melds Calgary, Alberta-based Enbridge’s 17,150 miles of North American crude oil pipelines with Houston-based Spectra’s 17,100 miles of long-haul natural gas pipelines. This allows the new company, to be called Enbridge Inc., to instantly become a gas-transporting powerhouse at a time when resistance from environmentalists has added to the typical challenges of organic growth.
Spectra represents an “extension of the runway,” Enbridge CEO Al Monaco said during a conference call with analysts. “We all know it’s pretty difficult to execute projects these days.”
Monaco will be CEO of the combined company, which would have a market capitalization of about $69.5 billion and be based in Calgary. Spectra CEO Greg Ebel will serve as chairman.
The transaction, when approved as expected in first-quarter 2017, will unite the Nos. 6 and 7 companies on Hart Energy’s Midstream 50 list, which ranks the sector’s players based on previous year’s EBITDA. Enbridge’s EBITDA for 2015 was $2.8 billion; Spectra’s was $2.75 billion.
Based on The Midstream 50, the new company’s total assets will be about $94 billion, surpassing Kinder Morgan Inc.’s (NYSE: KMI) roughly $84 billion to lead the ranking.
In market cap and enterprise value, the new Enbridge would not only lead all public companies in the midstream, but would become the fourth-largest Canadian company and the ninth-largest energy company in the world, according to an investor presentation.
Enbridge’s offer represents a premium of about 11.5% above Spectra’s closing stock price of Sept. 2. About 694 million new units will be issued, with Enbridge unitholders owning 57% of the new company and $22 billion of Spectra’s existing debt assumed by Enbridge.
The deal follows TransCanada Corp.’s (NYSE: TRP) announced acquisition of Columbia Pipeline Group Inc. (NYSE: CPGX) in March, continuing a consolidation trend of midstream majors seeking to leverage their size as they work their way through the downturn.
Joseph Markman can be reached at jmarkman@hartenergy.com or @JHMarkman.
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