Enbridge Inc. and Spectra Energy Corp. merge to create a North America gas infrastructure giant
On September 6, 2016, Enbridge Inc. and Spectra Energy Corp. have entered into a definitive merger agreement under which Enbridge and Spectra Energy will combine in a stock-for-stock merger transaction, valuing Spectra Energy common stock at approximately $28 bn
Enbridge Inc. is one of the leading North America energy distribution companies. The firm is based in Calgary and operates primarily in the transportation and distribution of energy in Canada and in the United States.
In particular, Enbridge is the largest gas delivery company in Canada and is particularly focused on the Ontario, Quebec and New Brunswick regions, where it is the undisputed market leader.The company is listed on the NYSE Stock Exchange, with a market capitalization of approximately $ 40 bn in September 2016.
Enbridge’s earnings (adjusted for non-recurring items) amounted to $ 1.9 bn in 2015.
Spectra Energy Corp
Spectra Energy Corp is one of North America’s largest pipeline operators. The headquarters of the firm are located in Houston, Texas and company’s operations comprise 21,000 miles of natural gas and crude oil pipelines in Canada and in the United States.
Other business areas of Spectra include oil storage as well as natural gas gathering, processing and local distribution operations.
Spectra is listed on the NYSE Stock Exchange and its market capitalization amounted to about 30 bn in September 2016.
Drivers of the deal
The deal is mainly driven by the revenues and cost synergies that the combined company is expected to achieve starting in 2017.
The combined company would generate yearly revenues of about $31 bn and, more importantly, secure $ 57 bn of projects under constructions or development that would lead the company to become a player with an unmatched scale and diversity in the North-American market.
Cost synergies are estimated at about $415 m a year, the majority of which should be achieved in the latter part of 2018. Other $ 200 m a year would instead come from tax benefits, achieved through utilization of tax losses commencing in 2019.
The deal will also allow the combined company to increase its financial flexibility: this is an important factor in this delicate moment for gas distribution operators that has followed the decrease in oil and gas prices of the last two years. Al Monaco, chief executive of Enbridge, has declared that the strength of the combined company will allow Enbridge to extend its dividend by 15% next year, in a period in which investors fear that pipeline operators may not be able to sustain their historical dividends.
Structure of the deal
Under the terms of the Transaction, Spectra Energy shareholders will receive 0.984 shares of the combined company for each share of Spectra they currently own. This means that the transaction values Spectra Energy common stock price at $ 40.33, recognizing a 11% premium to the closing price of Spectra Energy on September 5, 2016, the day before the transaction was announced.
Spectra Energy’s common stock would be valued approximately at $ 28 bn and its shareholders are expected to own about 43% of the combined company, which will be named Enbridge Inc.
The transaction is expected to close in the first quarter of 2017, subject to shareholders and regulatory approvals.
Credit Suisse acted as Enbridge’s Lead Financial Advisor. RBC Capital Markets also acted as financial advisor to Enbridge, while Sullivan & Cromwell LLP and McCarthy Tétrault LLP were legal advisors.
BMO Capital Markets and Citi acted as Spectra Energy’s Joint Lead Financial Advisors. Wachtell, Lipton, Rosen & Katz and Goodmans LLP acted as legal advisors to Spectra Energy and Skadden, Arps, Slate, Meagher & Flom LLP acted as tax counsel.
Sources and References: Bloomberg, Wall Street Journal, Financial Times, Companies’ websites, Utilitydive.com
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