Brookfield Moves Closer to Pipeline Victory as Pembina Exits

(Bloomberg) -- The takeover battle for one of Canada’s largest energy companies moved closer to resolution after Pembina Pipeline Corp. terminated its C$8.5 billion ($6.7 billion) deal to acquire Inter Pipeline Ltd., clearing a path for Brookfield Infrastructure Partners LP, which has pursued a hostile bid.

Inter Pipeline will pay a C$350 million termination fee to Pembina and will make a recommendation to shareholders on Brookfield’s unsolicited offer “in due course,” according to a statement Monday. After five months of trying to fend off its suitor, Inter said its board is “open to engaging with Brookfield in an effort to reach a mutually agreeable transaction.”

The scramble for control of the Calgary-based midstream company marks the biggest corporate fight in the Canadian resources industry since Newmont Mining Corp. thwarted a hostile bid by Barrick Gold Corp. in 2019 by agreeing to a joint venture around the two companies’ projects in Nevada.

Brookfield’s willingness to offer C$20 a share in cash was a key factor in forcing Pembina to fold, said Rob Thummel, a senior portfolio manager at TortoiseEcofin Investments LLC, which controls nearly 3.5 million Inter Pipeline shares.

“The cash component became the bigger piece in this transaction for shareholders and the board,” Thummel said in an interview on BNN Bloomberg Television. “Maybe the choppiness in the market we’ve seen lately made the absolute cash component of Brookfield’s offer more intriguing to the IPL board.”

Under the now-withdrawn offer by Calgary-based Pembina, investors would have received 0.5 of a Pembina share for each Inter share, a proposal valued at C$19.70 per share as of the close Friday.

The pursuit of Inter follows years of failed attempts to build major energy infrastructure projects in Canada such as TC Energy Corp.’s Keystone XL and Energy East, which has made existing lines potentially more valuable. Inter owns pipeline infrastructure across Western Canada, connecting oil and natural gas producers with domestic and foreign customers.

Brookfield’s latest offer comprises either C$20 a share in cash or 0.25 of a Brookfield Infrastructure Corp. share, subject to proration.

Inter dropped 1.2% to C$19.98 at 11:35 a.m. in Toronto while Pembina climbed 3.7% to C$40.85, its biggest gain since March. Brookfield Infrastructure Partners and Brookfield Infrastructure Corp. were down 0.2% and 6.1%, respectively, in New York.

Inter’s decision to scrap the Pembina deal “implicitly affirms the merits of our offer,” Brookfield said Monday in a statement. The company added that it expects Inter’s special committee of independent directors “to formally recommend our offer as any delay would be counter to the best interests of shareholders.”

The takeover fight began in February with an unsolicited C$7.1 billion offer from Brookfield. That was rejected by Inter, which subsequently agreed on June 1 to be bought by Pembina.

Brookfield has revised its offer three times. Inter shareholders were scheduled to vote on the Pembina offer at a July 29 meeting. The company said Monday the meeting will still go ahead to allow investors to vote on other matters.

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