09 September 2016

Enbridge to buy gas distributor Spectra Energy


On 6th September Canada’s Enbridge announced its intention to acquire Texas-based Spectra Energy, a gas distributor. The buyer offered a price of USD 40 apiece, which represents a 12 per cent premium over the target’s close of USD 36 on 2nd September, the last trading day prior to the deal being announced. The acquisition is worth around USD 28,000 million and is Enbridge’s largest to date, according to Zephyr, the M&A database published by Bureau van Dijk.

Listed on both the New York Stock Exchange (NYSE) and the Toronto Stock Exchange, Enbridge will issue new shares as consideration for the target. Upon closing, Enbridge’s stockholders will hold a 57 per cent stake in the merged entity (valued at USD 127,000 million), while the balance will be held by Spectra Energy’s owners. Subject to shareholder and regulatory approvals, the acquisition is set to close early next year.

The oil and gas transportation sector has recently been plagued by low commodity prices and public backlash against pipeline constructions, triggering a wave of consolidation in the industry, Bloomberg reported.  Last year, the US government decided to halt TransCanada’s plan to construct the Keystone XL pipeline, which was intended to transport bitumen from the oil sands in West Canada to the Gulf Coast of the US. Commenting on the verdict, US President Barack Obama stated that the project was not in the interests of the country and would undermine efforts to fight climate change. Similarly in Montreal, protestors last week disrupted hearings on TransCanada’s proposed Energy East pipeline project. Some of the activists were later arrested by the police for obstruction and assault.

According to the Wall Street Journal, the Spectra Energy takeover will allow both companies to expand their distribution networks without having to construct costly pipelines to fuel growth. As Enbridge currently derives most of its earnings from crude oil transportation, the merger also marks its pivot to the natural gas sector, the newspaper noted. 

With enhanced financial flexibility and a larger business scale following the deal, both companies are confident about their future growth, which they expect will boost dividends by up to 12 per cent every year through 2021. Greg Ebel, chief executive of Spectra Energy and soon-to-be chairman of Enbridge, said: “Together, the merged company will have what we believe is the finest platform for serving customers in every region of North America and providing investors with the opportunity for superior shareholder returns.”

Following the announcement, Spectra Energy’s shares, which are traded on the NYSE, surged 13 per cent to close at USD 41, while Enbridge’s equity was up 5 per cent from USD 41 on 2nd September.

Enbridge has appointed Credit Suisse and RBC Capital Markets as financial advisors, while Citigroup and BMO Capital Markets are assisting Spectra Energy.

© Zephyr