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$28 billion Deal for Spectra Takeover by Enbridge Announced


09/07/2016


$28 billion Deal for Spectra Takeover by Enbridge Announced
The largest North American energy infrastructure company is expected to be created after Spectra Energy Corp of Houston was announced to be bought by Canada's Enbridge Inc in an all-stock deal valued at about $28 billion (C$37 billion).
 
The manner in which pipeline companies are under pressure to merge as they grapple with overcapacity and sliding tariffs that have slowed dividend growth and unnerved investors is highlighted by the takeover which is the most significant energy deal since oil and natural gas prices crashed in mid-2014.
 
Next to U.S. transport giants Kinder Morgan Inc and Plains All American Pipeline LP, this Enbridge's biggest-ever deal will consolidate its leading position. As oil and gas producers slash spending on new wells, both the former mentioned companies have seen their stock prices sink over the last two years.
 
While Spectra's network ships natural gas to the U.S. East Coast, Enbridge's pipelines mainly send Canadian oil sands to refiners on the U.S. Gulf Coast.
 
Bruce McDonald, an antitrust expert with Jones Day law firm said that since the companies' networks have "limited overlap," the deal has no serious antitrust problems.
 
The U.S. Federal Energy Regulatory Commission did not comment.
 
Noting the biggest jump in more than three years, Spectra shares leapt 13 percent to $40.89. Spectra's shares are still down 16 percent from a high of $43 hit in July 2014, despite having risen some 50 percent since January on a partial recovery in oil and gas prices.
 
Enbridge's Toronto-listed shares bounced and its U.S.-listed shares rose 4.3 percent to $42.77.
 
0.984 shares of the combined company for each share held would be available to Spectra shareholders under the terms of the deal. Representing a premium of about 11.5 percent to Spectra's closing price on Friday, this is equal to $40.33 per share.
 
The companies said that the enterprise value of the Enbridge-Spectra deal is $127 billion. Enbridge will take on about $22 billion of Spectra debt and will issue about 694 million new shares. Over the next year, it planned to divest about $2 billion of non-core assets, Enbridge also said.
 
The combined company will be headquartered in Calgary and Enbridge Chief Executive Al Monaco will lead the combined company. Greg Ebel, Spectra's CEO, will be non-executive chairman.
 
"Over the last two years, we've been focused on identifying opportunities that would extend and diversify our asset base and sources of growth beyond 2019," Monaco said in a statement.
 
The combined company is expected to deliver annual savings of C$540 million, most of which are expected to be achieved in late 2018 and Enbridge shareholders will own about 57 percent of the new entity after the close of the deal.
 
Since oil and gas prices entered their worst slump in a generation only a handful of energy acquisitions have happened in the industry as buyers and sellers have been unable to agree on prices, despite lots of talk about an M&A wave.
 
But now more deals are starting to get done.
 
Privately held Yates Petroleum Corp, which has assets in the Permian Basin of West Texas and New Mexico, would be bought for $2.5 billion by EOG Resources Inc, a leading U.S. shale oil producer, the later announced on Tuesday.
 
The $10.2 billion takeover of Columbia Pipeline Group was completed by TransCanada Corp, Canada's second-largest pipeline operator, in July.
 
(Source:www.reuters.com)