“The consolidation of these companies would only enhance the power of the oil and gas industry to manipulate the energy marketplace and encourage the continued use of fracking, the widely used fossil fuel extraction method that is inherently hazardous to human health and our environment”. Existing pipelines are especially valuable, considering the costs and regulatory hurdles facing new pipeline construction.
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Pipeline companies had traditionally been seen as an energy investment relatively immune from the price swings of the commodities they carry because they lock in long-term contracts.
The valuation is based on the closing price of Calgary-based Enbridge’s common shares on September 2.
Monaco added the deal is “transformational for both companies”.
“From that standpoint, by combining the two companies, I think we’re going to be able to reach more customers and fuel the economy here in the USA”, said Michael Barnes, communications manager with Enbridge, which already has its USA headquarters in Houston.
Under the terms of the deal, Spectra Energy shareholders will receive 0.984 a share of the combined company, or about $40.33, for each Spectra Energy share they own. Enbridge shares (ENB), not active in premarket trading, closed Friday up 3.6% at $40.99. TransCanada Corp. agreed in March to buy Columbia Pipeline Group Inc. for $10.2 billion.
The deal follows crosstown rival TransCanada Corp.’s purchase of Columbia Pipeline in July after it failed to win approval a year ago for the proposed Keystone XL pipeline to boost heavy oil shipments from Alberta to Gulf Coast refineries.
Kash Pashootan, Portfolio Manager at First Avenue Advisory, Raymond James, talks about Enbridge’s purchase of Spectra Energy. Since then, MLP share prices have rebounded as oil prices stabilized. According to a statement, the combination will create the largest energy infrastructure company in North America – making Enbridge less reliant on the Canadian oil sands for growth – and one of the largest globally based on a pro-forma enterprise value of approximately C$165 billion (US$127 billion).
The all-stock deal will create a network of more than 86,000 kilometers (54,000 miles) of oil and gas pipelines serving most of Canada and the United States, with the exception of the US Southwest and California markets.
When it comes to earning per share the company is at -81.90% for the year with a projected 6.50% earning per share for the next year.
The companies’ pipeline assets “are irreplaceable; you could not build those assets today”, Spectra Chief Executive Greg Ebel said on an analyst conference call held to discuss the deal.
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-Lynn Cook, Alison Sider, Ben Dummett and contributed to this article.
