Two pipeline operators to merge

Canada’s Enbridge to absorb Spectra in $28B all-stock deal

Workers make repairs to the pipeline hub run by Spectra Energy Corp. in Guilford, Pa., in this file photo. Canada’s Enbridge is buying Houston-based Spectra Energy for about $28 billion, creating North America’s largest energy infrastructure company, the companies announced Tuesday.
Workers make repairs to the pipeline hub run by Spectra Energy Corp. in Guilford, Pa., in this file photo. Canada’s Enbridge is buying Houston-based Spectra Energy for about $28 billion, creating North America’s largest energy infrastructure company, the companies announced Tuesday.

Enbridge Inc. on Tuesday agreed to purchase fellow pipeline owner Spectra Energy Corp. for $28 billion in stock. In what would be the largest-ever foreign purchase by a Canadian company, the combination will create the biggest energy pipeline and storage operator in North America.

RELATED ARTICLE

http://www.arkansas…">PSC gives OK for oil pipeline across five waterways in state

"We'll be the FedEx" of the pipeline business, Greg Ebel, Houston-based Spectra's chief executive officer, said in an interview. "We ship, we pick up, we store product," said Ebel, who will become nonexecutive chairman at Enbridge.

The takeover comes amid a wave of consolidation in the pipeline industry, after lower oil and natural gas prices have diminished demand for shipments and as building new projects becomes increasingly difficult because of local opposition. Protesters disrupted hearings on a proposed TransCanada Corp. pipeline in Montreal last week. Several arrests were made last week at a site in North Dakota where Energy Transfer Partners is trying to build a line to Illinois.

"The environmentalists are out there, they're powerful, and they're trying to stop the natural gas pipelines," said Jay Hatfield, chief executive officer of Infrastructure Capital Management LLC, a New York-based hedge fund. "If you own one, that makes it that much more valuable."

Spectra Energy owns the natural-gas pipeline that burst in the Arkansas River last year. Spectra Energy said the 24-inch pipeline, which crossed the river about a mile east of the Interstate 30 bridge between Little Rock and North Little Rock, was damaged by river flooding.

The pipeline was a backup line to Spectra Energy's main line of its Texas Eastern Transmission system. The pipeline failure in May 2015, sent 3.9 million cubic feet of natural gas into the Arkansas River. The rupture sent two large geysers skywards near the Clinton Presidential Center, and large chunks of concrete, possibly from the pipeline, were flung into the air and damaged a towboat moored nearby.

In March, TransCanada Corp. agreed to buy Columbia Pipeline Group Inc. for $10.2 billion. Energy Transfer Equity LP terminated an agreement to buy Williams Cos. amid a stubborn two-year energy rout, while Kinder Morgan Inc. has moved to simplify its structure.

"Activity begets activity and I think that's what this may do," said Libby Toudouze, partner and portfolio manager at Cushing Asset Management. "As companies look to their future, they're thinking how can we be bigger, better, faster, stronger -- and the quickest way to do that is to buy somebody."

Spectra shares rose $4.85, or 13 percent, to close Tuesday at $41. Enbridge rose $2.07, or 5 percent, to $43.06.

The combined company, called Enbridge Inc., will be based in Calgary. Al Monaco will stay on as president and chief executive officer. The newly-expanded Enbridge will have about $20 billion of planned projects through 2019, including the Sabal Trail gas line and the Bakken Pipeline.

The companies plan to maintain "strong investment grade" credit ratings as projects that are currently under construction come into service, Monaco said on a conference call. The combined companies will have about $46 billion in debt.

"Now is the time to really be thinking of positioning for the future," Monaco said. "For us, strategically it's a check for us to move forward in the gas business."

Spectra shareholders will get $40.33 per share in the all-stock agreement, representing a premium of 12 percent to the Sept. 2 closing price, according to a company statement Tuesday. The deal, which has a breakup fee of $1.36 billion, will close in the first quarter of 2017, pending regulatory approval.

The combined entity will be a "world-class" North American energy infrastructure company, with Enbridge picking up key pipelines in the U.S. Northeast, Rob Thummel, managing director and portfolio manager at Tortoise Capital Advisors LLC, said in an email Tuesday. The deal "adds diversity" to both companies and "extends the runway of double-digit dividend growth for ENB shareholders through 2024," Thummel said.

Spectra's investors will receive 0.984 share of the combined company for each share of Spectra common stock they own. Shareholders of the Canadian acquirer will own about 57 percent of the combined company. Over the next 12 months, Enbridge said it expects to divest about $2 billion of noncore assets.

Information for this article was contributed by Jessica Seaman of the Arkansas Democrat-Gazette.

Business on 09/07/2016

Upcoming Events