Enbridge (NYSE:ENB) is acquiring Spectra Energy (NYSE:SE) for $28 billion in an all-stock deal that will create North America’s largest energy infrastructure company.
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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 combined company will be called Enbridge when the deal closes in the first quarter of 2017.
Spectra shareholders will get $40.33 per share in the all-stock agreement, representing a premium of about 12 percent to the September 2 closing price, according to a company statement Tuesday. Spectra, which operates in both Canada and the US, has 33,796 kilometers of natural gas and crude oil pipelines and about 300 billion cubic feet of natural gas storage and 4.8 million barrels of crude oil storage.
“Bringing Enbridge and Spectra Energy together makes strong strategic and financial sense, and the all-stock nature of the transaction provides shareholders of both companies with the opportunity to participate in the significant upside potential of the combined company”.
With combined secured projects in execution of C$26 billion (US$20 billion) and another C$48 billion (US$37 billion) of projects under development, the transaction allows Enbridge to extend its anticipated 10-12 percent annual dividend growth through 2024, said Monaco.
The head office will be in Calgary with the present Enbridge president and chief executive officer, Al Monaco, becoming the president and CEO of the new company.
But organic growth remains challenging, which has made existing infrastructure more valuable, said Spectra CEO Greg Ebel, who will be chairman of the combined company. According to Canada’s BNN TV, numerous questions put to Enbridge management on a conference call held around the Spectra deal news were around what Enbridge will do next.
Monaco said that perceived opportunities in the processing, distribution and storage of natural gas is a major part of the strategy of the deal, particularly due to the rapid increase of natural gas production in both the Marcellus and Utica formations and access to high demand markets in the northeastern U.S. That values Spectra shares at US$40.33, an 11.5 percent premium to the last closing, according to the companies.
There’s no doubt the deal is transformative, giving Enbridge more balance between its oil and natural gas businesses. Enbridge is a dominant oil shipper in Canada with 27,000 kilometres of liquids pipelines.
Enbridge’s pipelines mainly send Canadian oil sands to refiners on the U.S. Gulf Coast, while Spectra’s network ships natural gas to the U.S. East Coast.
Houston-based Spectra Energy owns oil and gas pipelines stretching more than 21,000 miles (33,800 kilometers) and has a large gas storage capacity.
He said more Canadian companies are also looking to the USA, both because of the size of the market and because of Canada’s increasing regulatory hurdles.
The headquarters of the combined company would be in Calgary.
Spectra has been trying to expand its existing network across New England, but last month the Massachusetts Supreme Court ruled that the power utilities that would be Spectra’s customers can not pass along additional costs to homeowners and businesses, putting those plans in jeopardy.
Enbridge said in its statement that it expects to divest about $2 billion of noncore assets over the next 12 months.
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The mammoth all-stock deal – the biggest in Canadian oilpatch history – will see Enbridge’s head office remain in Calgary. You can build projects cheaper than you can buy new assets.
