Enbridge Inc. on Tuesday agreed to purchase fellow pipeline owner Spectra Energy Corp. for $28 billion in stock.
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Shareholders of Spectra Energy will receive 0.984 shares of the combined company for each share of Spectra Energy common stock they own. The consideration to be received by Spectra Energy shareholders is valued at USA $40.33 per Spectra Energy share.
“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.
“We’ll be the FedEx” of the pipeline business, Greg Ebel, Houston-based Spectra’s chief executive officer, said in an interview.
After the close of the deal, Enbridge shareholders will own about 57 percent of the combined company, which is expected to deliver annual savings of C$540 million, most of which are expected to be achieved in late 2018.
Canadian energy firm Enbridge is buying a Texas pipeline company to expand its pipeline network for transporting crude oil and natural gas. The combined company will be called Enbridge Inc.
Barry Munro, head of oil and gas at EY, said energy companies are looking to merge to gain strength, and access cheaper capital, as the energy sector downturn drags on. “We are accomplishing that goal by combining with the premier natural gas infrastructure company to create a true North American and global energy infrastructure leader”. Shares of Spectra Energy Corp. rose $4.85, or more than 13 percent, to $41. He also added that the “Transaction provides shareholders of both companies with the opportunity to participate in the significant upside potential of the combined company” (read: Energy Spending May Resume: Stocks and ETFs in Focus).
“This transaction is transformational for both companies, and results in unmatched scale, diversity and financial flexibility with multiple platforms for organic growth”, said Monaco, who will stay on as president and CEO of the larger company. Enbridge said it would divest $2 billion of noncore assets over the next 12 months to improve its balance sheet.
It’s a smart move at a time when low oil prices have affected many companies’ bottom line.
Enbridge has been stymied in its attempts to grow and expand in Canada, most notably with its Northern Gateway proposal to move crude oil from northern Alberta to a port on the West Coast, providing access to new markets in the Pacific Rim.
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Spectra Energy Partners, LP has a market capital of 13838.47 at the moment and a profit to earnings ratio of 14.13. The deal will likely be closed by the first quarter of 2017.
