The Enbridge Spectra energy deal is taking place. Canada’s Enbridge Inc. stated Tuesday that it will purchase Spectra Energy Corp in a $28 billion all-stock deal. This will create North America’s largest energy infrastructure firm. This is a very significant energy infrastructure deal – the largest since the oil and gas crash since 2014. What does this deal tell us?
Fundamentally, it show us how much pressure some companies are under, and how they have to merge to deal with issues such as overcapacity and sliding tariffs that are responsible for slowing dividend growth and a reluctance to invest. The deal will consolidate the Enbridge position behind only Kinder Morgan Inc and Plains All American Pipeline LP. Both the last two mentioned have suffered a drop in stock prices over the past two years as expenditure on new oil wells has plummeted.
Enbridge pipelines are mainly responsible for transporting Canadian oil sands to US Gulf Coast refineries. Spectra is generally responsible for natural gas shipment to the US East Coast. Due to a limited overlap of functions, there are no antitrust issues worthwhile mentioning between these firms according to a professional antitrust expert.
Naturally, there was an effect on the shares of the companies concerned. Shares in Spectra jumped 13% to $40.89. This was the company’s largest share price increase for over three years. Even though Spectra prices had hiked by 50% from January, the share price was still less than the $43 high in 2014. The low price is due to the falling prices of oil and gas.
Enbridge US shares are trading at $42.77 while its Toronto-listed shares bounced. For each Spectra share held, shareholders will receive 0.984 shares of the combined company. At $40.33 per share, this is equivalent to an 11.5% premium on Spectra’s Friday closing price. The enterprise value of the combined Enbridge Spectra company is $127 billion. Around 694 new shares will be issued by Enbridge and it will also take on $22 billion of Spectra debt.
Al Monaco, the Enbridge CE, will lead the combined Enbridge Spectra energy firm. CEO of Spectra, Greg Ebel, will take the role of non-executive chairman. Once the deal has been closed, 57% of Enbridge-Spectra will be owned by shareholders. This will result in a savings of C$540 million each year. Most of this is expected to occur in 2018.
After the close of the Enbridge Spectra energy deal, Enbridge shareholders will own about 57 percent of the combined company, which is expected to deliver annual savings of C$540 million, most of which are expected to be achieved in late 2018. This is just one of several merger and acquisition (M&A) deals expected from now on.
Pvt. Ltd.
