Pembina Pipeline plans friendly takeover of Veresen in $9.7B deal
Companies are complementary representing liquids and gas services.
CALGARY — Pembina Pipeline Corp. has announced a $9.7-billion friendly takeover offer for Veresen Inc. in the latest case of energy companies pushing for scale and diversification in uncertain times.
The Calgary-based companies both provide pipeline, storage and processing infrastructure in several key oil-and-gas producing areas of Western Canada, but their geographic and product profiles are complementary, their officials told a conference call with financial analysts.
“We are predominantly a liquids company, Veresen is predominantly a gas company. And I think that is the magic,” Pembina CEO Mick Dilger said. “Now we can bring both service offerings to our customers.”
Veresen shares soared by close to 20% on the news, gaining $2.72 to $17.96 on the Toronto Stock Exchange. Pembina’s stock-and-cash offer was worth the equivalent of $18.65 per Veresen share when announced.
Veresen CEO Don Althoff said there will be more near-term growth opportunities than either company could achieve separately because of Pembina’s financial strength and the location of Veresen’s operational base.
“The plays you serve matter – especially in lower commodity price environments – because it’s the most prolific and economic areas that will continue to grow and be developed,” Althoff said.
AltaCorp Capital analyst Dirk Lever said the deal was a great fit for both companies.
“There’s terrific synergies between the two companies, there’s really no overlap at all,” Lever said.
The companies said they expect to achieve up to $100 million in annualized pre-tax efficiencies through a combination of cost savings and growth.
The deal, which the companies said would create one of the largest energy infrastructure firms in Canada, will make it easier to finance what are increasingly expensive growth projects, said Lever.
“It’s no longer a million dollar game that we’re looking at, it’s a billion dollar game. And you need the size and heft in order to get these projects done,” he said.
Althoff said their proposed US$3-billion Jordan Cove liquefied natural gas terminal could benefit from the combined balance sheet, though they have regulatory and contract barriers to solve there as well.
“This was always the project that was just a little too big for Veresen, but it’s not too big for the combined entity,” he said.
Pembina also has several big projects in the works, including a potential $4-billion polypropylene upgrader that would benefit from an Alberta government incentive program.
The deal is one of several multibillion-dollar takeovers in Canada’s pipeline industry in the last year.
In December, shareholders approved Enbridge’s US$28-billion acquisition of Houston-based Spectra Energy, about half a year after TransCanada completed its takeover of Columbia Pipeline Group of Houston in a deal valued at US$13 billion.
As part the latest deal, Veresen shareholders would receive nearly $4.85 in cash and the rest in Pembina stock, assuming the maximum $1.523 billion in cash is issued, while Pembina would increase its dividend by about 6%.