Brookfield Says It May Sweeten Pipeline Bid After Ruling

Brookfield Infrastructure Partners LP said it’s considering “further enhancements” to its hostile takeover bid for Inter Pipeline Ltd., one day after Canadian regulators imposed tougher conditions on the offer.

Toronto-based Brookfield extended its bid to Aug. 6. It must get investors to tender at least 55% of Inter Pipeline’s shares in order to succeed, the Alberta Securities Commission ruled on Monday. Shares that Brookfield already owns don’t count toward the total.

That’s higher than the previous hurdle of 50% plus one, making it harder for Brookfield to derail a friendly offer by Pembina Pipeline Corp. to buy Inter Pipeline for $6.9 billion in stock.

Inter Pipeline rose as much as 1.3% in Toronto. Brookfield Infrastructure fell as much as 2.4%, while Pembina dropped 0.9%.

The regulator’s ruling adds a new twist to the fight over who will control Inter Pipeline, a midstream energy company that owns pipelines in western Canada’s oil region, liquid storage terminals in Europe and a large petrochemical complex in Alberta that’s under construction.

Brookfield Says It May Sweeten Pipeline Bid After Ruling

In Monday’s decision, Alberta’s securities regulator also said Brookfield must disclose new details about its use of derivatives called total return swaps. Brookfield used the swaps to acquire a nearly 20% economic interest in Inter Pipeline, without having to disclose its stake in the company before it launched a hostile bid in February.

The ruling throws into question the practice of using derivatives to build an economic position in companies without needing to disclose. Prior to making its first offer, Brookfield acquired about 9.8% of Inter Pipeline’s shares -- just below the 10% level that would have required disclosure under Canadian rules. The use of swaps allowed Brookfield to raise the size of its economic stake to almost 20%. In Monday’s oral ruling, the Alberta regulator called the tactic “abusive.”

Brookfield must also disclose details on its relationship with the Bank of Montreal, including “the existence of, amount of, and conditions for the payment of the completion fee set out in an engagement letter between BMO Nesbitt Burns Inc. and Brookfield,” the regulator said in a release. Brookfield paid BMO the fee while the bank was a counterparty to some of Brookfield’s swap purchases, according to testimony at the hearing.

“We do not comment on client transactions,” Paul Gammal, a bank spokesman, said in an email. “BMO complies with its obligations under securities laws.”

Inter Pipeline’s board rejected Brookfield’s advances before securing a friendly offer from Pembina for C$19.45 a share, announced June 1. Brookfield raised its offer within days and on June 18 revised it to give Inter Pipeline shareholders the option of C$19.50 in cash or about C$20 in stock.

Brookfield is seeking to win over shareholders before Pembina’s offer goes to a vote on July 29.

Inter Pipeline Chair Margaret McKenzie said in a statement: “With the ASC’s favorable decision, our shareholders can proceed to vote for the Pembina arrangement without the risk that Brookfield will be permitted to further increase its aggregate share and swap position to frustrate the ability of shareholders to choose.”

Brookfield launched the case before the regulator last month with a challenge to some of Inter Pipeline’s defensive tactics, including the C$350 million ($280 million) so-called break fee to terminate the Pembina deal as well as Inter Pipeline’s shareholder rights plan. Brookfield ended up withdrawing its challenge to the break fee. Meanwhile, the challenge to the rights plan was rejected by the securities commission.

The battle for the Canadian midstream company follows years of failed attempts to build major projects like TC Energy Corp.’s Keystone XL and Enbridge Inc.’s Energy East, potentially making existing pipelines more valuable.

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