Calgary’s Pembina Pipeline buys Veresen for $9.7 billion, creates $33 billion company

Acquisition expected to close late in 3rd quarter or early in 4th quarter of 2017

Pembina Pipeline Corporation and Veresen Inc. announced they entered into an agreement to create one of the largest energy infrastructure companies in Canada with a pro-forma enterprise value of approximately $33 billion, according to a press release.

The cash portion of the sale will be initially funded through Pembina’s $2.5 billion unsecured credit facility, which will be  refinanced with a combination of internally generated cash flows and the issuance of medium-term notes and preferred shares.

“This transaction is highly strategic for Pembina and Veresen alike, providing clear visibility to creating long-term value for our respective shareholders,” said Randy Findlay, Pembina’s chairman of the board.

The portfolio will include crude oil, liquids and natural gas pipelines, terminal, storage and midstream operations, gas gathering and processing facilities as well as fractionation facilities.

“The creation of an integrated business across the energy infrastructure value chain results in a combined entity that is greater than the sum of its parts,” said Stephen Mulherin, chairman of the board.

According to the press release, the combined company expects to drive significant shareholder value through the following benefits:

1. The combined asset base is highly integrated across the value chain and extends the geographical reach of the combined company while enhancing its customer service offering.
2. The combined company will benefit from diversification across basins and products, as well as customers and currency.
3. The cash flows of the combined entity will be over 85 per cent fee-for-service weighted, ensuring the maintenance of a strong balance sheet.
4. The transaction creates an organization of meaningful scale able to pursue larger growth projects.

“The combined scale and financial strength, along with a proven track record of safe, on-time and on-budget project delivery, gives us confidence that the collective growth program currently under construction of approximately $6 billion will translate into meaningful value for shareholders,” said Mulherin.

He added that combining the two organizations augments their ability to compete for future investment opportunities and execute on a larger, more complex suite of opportunities than each company on a standalone basis.

Under terms of the agreement, Pembina is offering to acquire all the issued and outstanding shares of Veresen.

The transaction is valued at approximately $9.7 billion including the assumption of Veresen’s debt (including subsidiary debt) and preferred shares.

Pembina is offering to acquire all of the outstanding Veresen common shares in exchange for either (i) 0.4287 of a common share of Pembina or (ii) $18.65 in cash, subject to pro-ration based on maximum share consideration of 99.5 million Pembina common shares and maximum cash consideration of approximately $1.523 billion.

Assuming full pro-ration, each Veresen shareholder would receive $4.8494 in cash and 0.3172 of a common share of Pembina for each Veresen common share.

This offer represents a 21.8 per cent premium to Veresen’s 20 day weighted average price of $15.31 and a 22.5 per cent premium to Veresen’s closing share price of $15.23 on April 28, 2017.

The transaction was unanimously approved by the Boards of Directors of both companies and is expected to close late in the third quarter or early in the fourth quarter of 2017.