The offer from Pembina beats a prior hostile bid from Inter Pipeline’s largest shareholder Brookfield Infrastructure Partners. Brookfield, which owns 9.75% of Inter Pipeline, initially launched a takeover bid in February. Inter rebuffed the proposal but also started a review of its options.

Following Pembina’s bid of C$19.45/share on Jun. 1, Brookfield subsequently raised its offer on Jun. 4 from C$16.50/share to C$19.75/share. Brookfield’s offer is a mix of about 74% cash and 26% Brookfield shares.

Nevertheless, Inter Pipeline’s board said it “continues to unanimously recommend the Pembina transaction to shareholders, which is highly strategic for both parties.” It added that the Pembina deal is also more favorable because it would enable shareholders to participate directly in the cash flow growth from Inter Pipeline’s Heartland Petrochemical Complex, which is currently under construction and due to start up in 2022.

The Heartland Petrochemical Complex in Alberta will be Canada’s first integrated propane dehydrogenation (PDH) and PP complex, converting locally sourced, low-cost propane into 525,000 t/y of PP.

Pembina and Kuwait’s Petrochemical Industries Company had also been planning to build a rival PDH/PP complex in Alberta with startup in 2023, but the project was suspended indefinitely in March 2020 with Pembina citing “significant risks” from the Covid-19 pandemic, particularly in relation to project costs.

Commenting on the transaction, Inter Pipeline’s chair of the board of directors Margaret McKenzie said: “After a comprehensive review of strategic alternatives by the special committee of the board of directors of Inter Pipeline, it was evident that a combination with Pembina offered compelling value for Inter Pipeline shareholders in the short-term, as well as the opportunity to participate in the upside of HPC and the combined business longer-term.”

The newly merged entity will be led by Pembina’s senior executive team. Representation from Inter Pipeline on Pembina’s board will be decided prior to the transaction closing, which is expected in the fourth quarter of 2021. The companies said the merger will lead to annual cost savings of as much as C$200 million.

Author: Elaine Burridge, Freelance Journalist