Enbridge Inc. (ENB) and Spectra Energy Corp (SE) revealed that they reached a definitive merger contract under which Enbridge and Spectra Energy will combine in a stock-for-stock merger transaction, which values Spectra Energy ordinary stock at about C$37 billion or US$28 billion, based on the closing price of Enbridge’s ordinary shares on September 2, 2016.
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Under the terms, Spectra shareholders will receive 0.984 shares of the combined company for each share of Spectra common stock they own.
The company’s operations in the U.S. and Canada include approximately 21,000 miles of natural gas and crude oil pipelines; approximately 300 billion cubic feet of natural gas storage; 4.8 million barrels of crude oil storage; as well as natural gas gathering, processing, and local distribution operations.
Enbridge’s biggest-ever deal will consolidate its leading position next to US transport giants Kinder Morgan Inc and Plains All American Pipeline LP, which have seen their stock prices sink over the last two years as oil and gas producers slash spending on new wells.
The consideration Spectra shareholders receive is valued at $40.33 per Spectra share, based on the closing price of Enbridge common on September 2, a roughly 11.5% premium to the closing price of Spectra common on September 2.
If successful, the merging of Spectra Energy and Enbridge will result in the creation of the largest energy infrastructure company in North America.
If the deal closes as expected early next year, Spectra will add 140,800 kilometres of gas pipelines to bring Enbridge’s total gas lines to 165,600 kilometres, while Spectra will add only 2,720 kilometres of liquids pipelines to Enbridge’s existing 27,600 kilometres.
On Tuesday, Canadian pipeline company Enbridge agreed to the purchase of Spectra Energy Corporation out of Houston.
Shares of Enbridge (TSE:ENB) traded up 1.81% on Wednesday, hitting $56.30.
Spectra Energy Partners, LP (NYSE:SEP) was downgraded by stock analysts at Piper Jaffray Cos. from an “overweight” rating to a “neutral” rating in a research report issued on Wednesday.
“We’ll be the FedEx” of the pipeline business, Greg Ebel, Houston-based Spectra’s chief executive officer, said in an interview.
The transaction will also give shareholders a 15 percent annualized dividend increase in 2017 and an annual 10 percent to 12 percent dividend growth through 2024, according to the statement.
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Pipeline companies help transport oil, natural gas, and other liquids across the country. The transaction values Spectra’s common stock at about $28 billion. Enbridge will have multiple, cost-effective funding sources and be even more competitive in capturing opportunities. Zions Bancorporation now owns 4,311 shares of the company’s stock worth $170,000 after buying an additional 3,603 shares in the last quarter. Joint lead financial advisors for Spectra Energy were Citi and BMO Capital Markets.
