The oil and gas industry is certainly a dynamic industry with lots of major deals. This latest one combining Spectra Energy and Enbridge falls into that category. Lately though, these big deals have had some issues. The DOJ stopped the Halliburton and Baker Hughes deal and ET dropped out of the merger with Williams. While this is getting considerable attention, it will be interesting to see if Spectra Energy and Enbridge can make it to the altar.
Two of North America’s largest energy infrastructure companies, Spectra Energy and Enbridge, are merging, creating North America’s largest energy infrastructure firm in a $28 billion deal.
The stock-for-stock deal values Spectra common at roughly $28 billion, based on the closing price of Enbridge’s common shares on Sept. 2, Kallanish Energy calculates.
Under the terms of the transaction, Spectra shareholders will receive 0.984 shares of the combined company for each share of Spectra common owned.
The consideration Spectra shareholders receive is valued at $40.33 per Spectra share, based on the closing price of Enbridge common on Sept. 2, a roughly 11.5% premium to the closing price of Spectra common on Sept. 2.
Enbridge shareholders will own roughly 57% of the combined company and Spectra shareholders will own approximately 43%. The combined company will be called Enbridge.
“Over the last two years, we’ve been focused on identifying opportunities that would extend and diversify our asset base and sources of growth beyond 2019,” said Al Monaco, Enbridge CEO. “We are accomplishing that goal by combining with the premier natural gas infrastructure company to create a true North American and global energy infrastructure leader.”
The merger partners point to several reasons for the deal:
- The combined company brings together many of the highest quality energy infrastructure assets in North America: liquids and gas pipelines; U.S. and Canadian midstream businesses; a regulated utility portfolio; and a growing renewable power generation business.
- The merged company brings a low-risk commercial structure with stable long-term cash flow, as 96% of pro-forma free cash flow is underpinned by long-term commercial agreements (cost-of-service, take-or-pay, of fixed fee); 93% of customers are investment grade or equivalent counterparties; and less than 5% of combined pro-forma cash flow will have direct exposure to commodity price risk.
- Together, Enbridge and Spectra Energy bring $20 billion in secured capital and a $37 billion inventory of probability weighted projects in development.
- The combination is expected to result in sufficient internally generated cash flow to fund growth and improve balance sheet strength. Enbridge will have multiple, cost-effective funding sources and be even more competitive in capturing opportunities.
- The combined company’s $57 billion organic growth platform is expected to support a dividend growth rate of 10-12% through 2024, including an anticipated aggregate increase of 15% in 2017 post-closing.
- The combination is expected to achieve annual run-rate synergies of $415 million. Roughly $200 million of tax savings can be achieved through utilization of tax losses beginning in 2019.
“The combination of Enbridge and Spectra Energy creates what we believe will be the best, most diversified energy infrastructure company in North America, if not the world,” said Greg Ebel, CEO of Spectra, who will become chairman of the new Enbridge.