Midstream Acquisitions Showcase Industry Appetite for Assets

Pembina and Kinder Morgan both add substantial infrastructure in separate deals valued at a combined $8 billion.

A look at the combined assets of Pembina and Inter Pipeline.
SOURCE: Pembina

Pembina Pipeline Corporation will acquire Inter Pipeline in an all-stock deal valued at around C$8.3 billion (US$6.9 billion), or C$19.45 per share. The deal will create one of the largest energy infrastructure companies in Canada, with a pro forma enterprise value of $53 billion.

Inter Pipeline assets include six pipeline systems (both conventional and oil sands) including the Mid-Saskatchewan, Bow River, and Central Alberta systems; three straddle plants; two off-gas processing facilities; an olefinic fractionator; and 19 million bbl of storage capacity in Western Europe.

The deal follows Brookfield Infrastructure Partners’ C$13.5 billion hostile takeover offer in February, which Pembina rejected pending a strategic review of alternatives.

Under the terms of the deal, Inter Pipeline shareholders will receive 0.5 of a share of Pembina for each share of Inter Pipeline that they own. The C$19.45 per Inter Pipeline share consideration represents a premium of about 17.8% to the value implied by the takeover bid announced by Brookfield Infrastructure, according to Pembina.

“The transaction is highly strategic for both Pembina and Inter Pipeline, providing clear visibility to creating long-term sustainable value for our respective shareholders," said Randy Findlay, chairman of the board at Pembina. “It represents a compelling opportunity to continue building on our respective low-risk, long-term, fee-for-service business model, expand our customer service offerings, and create significant value through the realization of synergies, vertical integration, and high return growth opportunities.”

The transaction is valued at C$15.2 billion, including the assumption of Inter Pipeline’s debt. Pembina and Inter Pipeline shareholders are expected to own 72% and 28% of the combined company, respectively. The combined entity will continue to be led by Pembina's senior executive team. Representation from Inter Pipeline on Pembina's board of directors will be determined prior to closing of the deal.

In the US, Kinder Morgan has agreed to pay $1.225 billion for Stagecoach Gas Services, a natural gas pipeline and storage joint venture between Consolidated Edison and Crestwood Equity Partners LP.

Stagecoach comprises four natural gas storage facilities with a total FERC-certificated working gas capacity of 41 Bcf and 185 miles of natural gas pipelines with multiple interconnects to major interstate natural gas pipelines, including the Kinder-owned Tennessee Gas Pipeline. The deal is expected to close in the third quarter of 2021.

Kinder Morgan expects the investment to be immediately accretive to its shareholders. Consolidated Edison and Crestwood will split the proceeds from the divestiture in line with each member’s 50% stake in the venture.