Brookfield Infrastructure Partners LP made an unsolicited CA$7.08 billion (US$5.6 billion) offer on Feb. 10 to buy Canada’s Inter Pipeline Ltd. as it seeks to benefit from rebounding oil and gas demand, after an approach last year was rebuffed.
Brookfield, which owns and operates assets in the utilities, transport and storage sectors, said it has acquired 19.65% economic interest in Inter Pipeline, to become the top shareholder in the Calgary, Alberta-based company.
The infrastructure firm offered CA$16.50 per share for Inter Pipeline, a 23.13% premium to Feb. 10 close, valuing the company’s equity at CA$7.08 billion. Including debt, the deal is valued at about CA$13.5 billion. Brookfield added it is willing to sweeten its offer to between CA$17 and CA$18.25 a share if it is granted access to due diligence.
On Feb. 11, Inter Pipeline the unsolicited offer made by Brookfield did not reflect the true value of the company.
Brookfield said it started amassing Inter Pipeline shares in March 2020 and first approached the company to discuss a deal in September, but discussions stalled as the two companies had markedly different views of Inter Pipeline’s value.
Rebounding Demand
Pipeline space for crude was in high demand in western Canada before the COVID-19 pandemic hit and caused both oil demand and supply to fall sharply. The region's production has rebounded quickly this year.
“Despite a strong recovery in global equity markets and a return of commodity prices to pre-COVID levels, IPL’s share performance and credit profile continues to be strained,” Brookfield said in a statement detailing its offer.
Inter Pipeline did not immediately respond to a request for comment. Shares in the company nearly halved through 2020 but have ticked up about 13% since the start of this year.
Inter Pipeline's assets include over 7,000 km (4,300 miles) of pipelines and 5 million barrels of oil storage in western Canada, as well as natural gas liquids processing plants. It also owns storage terminals in Denmark and Sweden.
Pipeline companies are attractive to pension funds and private equity firms alike as they generate steady cash flow through long-term contracts, helping limit volatility in crude oil prices tumble. Such steady yielding assets are especially in demand during near zero interest rate environment.
The offer is fully financed, with a maximum cash consideration of about CA$4.9 billion and a maximum aggregate number of BIPC shares issued of about 19 million, Brookfield said.
In 2019, Inter Pipeline rejected an unsolicited CA$12.4 billion buyout offer from an unnamed bidder, with media reports later revealing the suitor as Hong Kong billionaire Li Ka-shing. That offer valued Inter Pipeline shares at around CA$30 each.
Brookfield Infrastructure has engaged BMO Capital Markets and Barclays Capital Canada Inc. to act as joint financial advisers. (US$1 = 1.2697 Canadian dollars)
Article includes update from recent Reuters report.
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