Derek Johnson, Supervisor/operator for Enbridge loads pipe at a storage facility just west of Morden, Man., Thursday, Aug. 16, 2018.JOHN WOODS/The Canadian Press
Enbridge Inc. is sweetening its bid to acquire all of majority-owned Spectra Energy Partners LP in a $4.3-billion stock deal to simplify its tangled business structure.
Enbridge on Friday said it increased by nearly 10 per cent its offer for the rest of the U.S. subsidiary, known as a master-limited partnership, or MLP. The company said it would issue 91 million shares under the deal, in which 1.111 of its shares would be exchanged for each share in Spectra Energy Partners (trading symbol SEP) that Enbridge doesn’t already own.
Enbridge, which already owns 83 per cent of the unit, is keen to reduce complexity in the wake of its $37-billion takeover of Spectra Energy Corp. That deal vastly expanded its web of North American pipelines, but added to Enbridge’s debt and fuelled investor concerns about the company’s knotty corporate structure.
Shares of its publicly traded subsidiaries have also been pressured by a U.S. tax ruling that stopped MLPs from claiming allowances on fees charged to oil-company shippers. The change reduced the appeal of tapping the units – in lieu of equity and debt markets – to help fund billions of dollars’ worth of growth projects and prompted Enbridge to launch buyout offers earlier this year.
Enbridge in May offered 1.0123 of its shares for each share of SEP. Friday’s higher offer reflects a recent revision to the March tax ruling by the U.S. Federal Energy Regulatory Commission (FERC). The July revision dealt with treatment of deferred taxes and was seen as particularly favourable to SEP.
Still, Enbridge’s Toronto-listed shares slipped about 2 per cent early in Friday’s session as investors wagered the company would be compelled to offer a similar premium to consolidate Enbridge Income Fund and Enbridge Energy Partners units.
“We believe that there was a market expectation that any bump in the exchange ratio would be similar across all the entities,” Royal Bank of Canada analyst Robert Kwan said in a research note.
He said the added premium for SEP would reduce cash savings by $22-million, and that Enbridge could abandon a roll-up deal for one of three remaining units should the terms get too rich.
In a statement, Enbridge called the July FERC revisions “uniquely positive” for SEP and said the amalgamation reduces risks tied to potential further U.S. regulatory changes affecting MLPs.
“Significant weakening of the U.S. Master Limited Partnership (MLP) capital markets has adversely affected the growth opportunities for MLPs, including SEP,” Enbridge said, adding its continuation as a standalone entity stood to limit future distribution growth.
The deal is expected to close in the fourth quarter.
Spokesman Michael Barnes said Enbridge aims to conclude similar deals with other units, including Enbridge Income Fund, Enbridge Energy and Enbridge Energy Management LLC, by the end of the year.
“We will continue to exercise discipline and rigour in applying our principle that every transaction must be a win for [Enbridge] as well as the [sponsored-vehicle] holders,” he said in an e-mailed statement.
Calgary-based Enbridge is selling assets and restructuring operations as it proceeds with $22-billion in major projects, including the massive $9-billion Line 3 oil pipeline from Hardisty, Alta., to Superior, Wisc.
Line 3 cleared its final regulatory hurdle last June but remains deeply opposed by Indigenous tribes in Minnesota. The contentious pipeline would replace a 1960s-era conduit that is badly corroded, nearly doubling capacity to 760,000 barrels a day.
Bond-rating agencies had previously welcomed the wider consolidation as positive for Enbridge’s debt profile. So far this year, the company has also sold $7.5-billion assets, including renewable energy projects as well as Canadian natural-gas gathering and processing infrastructure.