Tuesday morning the Calgary-based power company announced plans to buy Spectra Energy in a deal worth -billion. The combination will create the leading energy infrastructure company in North America and one of the leading globally based on a pro-forma enterprise value of about C$165 billion ( US$127 billion ).
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The company’s operations in the United States 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.
Under the terms of the transaction, Spectra will receive 0.984 shares of the new entity for each share that they now own.
Spectra shareholders will get 0.984 shares of the combined company for each share they own, valued at about $40.33 a share, based on share prices on September 2.
The companies’ master limited partnerships, Spectra Energy Partners (SEP) and Enbridge Energy Partners (EEP) will continue to be separate publicly traded companies, headquartered in Houston, according to the release. Under the terms of the deal, Spectra shareholders will get 98.4 shares of Enbridge for every 100 shares of Spectra they own.
Investors of both companies seemed to approve of the deal, with Enbridge shares increasing by 3.85% in Toronto trading and Spectra’s jumping 13.45% in NY.
Canadian energy company Enbridge said it was combining with its counterpart Spectra Energy to create what it said was a North American infrastructure giant.
After the natural gas and oil prices started sliding since mid-2014, the industry has been struggling with falling profitability and led the pipeline companies to operate at overcapacity.
The deal is expected to close in the first quarter of 2017, pending shareholder and regulatory approvals. Credit Suisse Group AG upgraded shares of Enbridge Energy Partners, L.P. from a “neutral” rating to an “outperform” rating and raised their price objective for the company from $25.00 to $27.00 in a research note on Monday, August 1st.
“This is a great deal for both companies and I think they should both go higher”, Cramer said in the above video, referring to shares of both companies. The new company will be more or less balanced between the two.
The deal links up crude-hauling heavyweight Enbridge with Spectra’s natural gas focused network, which will create a more diverse and stable company, the companies said Tuesday.
The Enbridge-Spectra deal comes at a time when Enbridge’s planned oil-carrying Northern Gateway pipeline from Alberta to a marine export terminal at Kitimat faces an uncertain future because of court rulings and a proposed federal ban on oil tanker traffic on B.C.’s north coast. The consideration to be received by Spectra shareholders is valued at $40.33 per Spectra share.
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Enbridge said expects it would divest about $2 billion of noncore assets to provide additional financial flexibility.
