Inter Pipeline Surges Above Price of Brookfield’s Hostile Offer

Inter Pipeline Ltd. surged as Brookfield Infrastructure Partners LP made a hostile C$7.1 billion ($5.6 billion) offer following the failure of previous talks to produce a friendly deal.

The bidder, an affiliate of Brookfield Asset Management Inc., said Wednesday it will offer C$16.50 per share in cash or stock and has amassed a 19.6% economic stake in Inter through shares and derivatives, making it the Calgary-based company’s largest investor.

Inter Pipeline rose as much as 36% and was up 29% to C$17.30 as of 12:36 p.m. in Toronto.

It’s not the first time that Inter Pipeline has attracted takeover interest. In 2019, the company said it received an unsolicited proposal. The Globe and Mail reported that Inter Pipeline had rebuffed a C$30-a-share offer from Li Ka-Shing’s CK Infrastructure Holdings Ltd.

Brookfield said it first approached Inter Pipeline in September and subsequently made takeover proposals at a premium of as much as 50% to the company’s share price at the time. It said Inter “declined to engage constructively” on a deal and took an optimistic view of its future growth potential.

Intrinsic Value

“Brookfield Infrastructure believes the company’s view fails to recognize the capital market realities facing energy-based infrastructure companies now and in the future,” the firm said in a statement.

Inter Pipeline said Thursday it had previously received proposals of C$17 to $18.25 per share from Brookfield, which didn’t reflect the company’s “intrinsic value.”

The company operates oil pipelines in Alberta and Saskatchewan as well as natural gas liquids processing plants. It’s looking for a partner to buy a stake in the C$4 billion Heartland Petrochemical Complex (HPC), which is under construction in Alberta.

Inter Pipeline shares traded at C$17.61 at 10:19 a.m. in Toronto. They slumped 38% in the year through Wednesday, trailing a gauge of energy stocks on the S&P/TSX Composite Index. The company cut its monthly dividend in March by 72%.

Serious Discussions

Brookfield’s offer makes it increasingly difficult for Inter Pipeline’s board to avoid serious discussions with the buyout firm, JPMorgan Chase & Co. analysts let by Jeremy Tonet said in a note.

“We see the board either reengaging to secure a price above the current offer or increasing HPC contracting disclosures to substantiate for the market that IPL’s intrinsic value stands well above the offer,” Tonet said.

Brookfield Infrastructure, based in Toronto, is one of the world’s largest owners of hard infrastructure assets, managing a $91 billion portfolio that includes electrical utilities, pipelines, ports, toll roads and data infrastructure, according to its website. In 2016, Brookfield and a group of partners agreed to buy a 90% stake in a Brazilian gas-distribution network owned by Petroleo Brasileiro SA for $5.2 billion.

Brookfield ‘s financial advisers are BMO Capital Markets and Barclays Capital Canada Inc. and McCarthy Tétrault LLP is its legal adviser. Inter Pipeline’s financial adviser is TD Securities Inc., and Burnet, Duckworth & Palmer LLP and Dentons Canada LLP are its legal advisers.

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