On Tuesday Enbridge Inc announced that it would be acquiring Spectra Energy Corp in a deal worth $28 billion to produce the biggest energy infrastructure business in North America.
The deal is the largest energy acquisition since oil and gas prices plummeted in 2014 and outlines how pipelines groups are attempting to consolidate as overcapacity and lower tariffs have pushed down dividend growth and caused concern for investors.
Enbridge will now be positioned in a leading slot alongside other U.S. transport giants Kinder Morgan Inc and Plains All American Pipeline LP, who have seen their share price fall over the period of two years as oil and gas company cut costs on new wells.
Pipelines owned by Enbridge send oil sands from Canada to refiners on the Gulf Coast of the U.S., Spectra’s network compliments its work through the shipping of natural gas to the U.S. east coast.
It is thought that there should be no considerable antitrust issues as both businesses do not have overlapping networks however the U.S. Federal Energy Regulatory Commission has not yet responded.
Stocks of Spectra jumped by 13 percent to $40.89, the largest rise the company has seen in over three years. This is despite the companys shares rising 50 percent by January on the revival of oil and gas prices however they are still 16 percent down from their high of $43 percent in July 2014.
As a part of the deal Spectra shareholders will receive 0.984 shares of the merged group for each Spectra share. The amount is a 11.5 percent premium to Spectra’s Friday closing price and calculates to $40.33 per share.
Enbridge will have to take on around $22 billion in debt from Spectra and issue around 694 million new shares. Enbridge also plans to divest $2 billion in non-core assets over the period of 12 months.
Leading the new merged group will be Enbridge Chief Executive, Al Monaco whilst Greg Ebel, Spectra’s CEO, will be non-executive chairman of the Calgary based business.
In a statement Monaco said:
“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.”
Once the deal is complete, Enbridge investors will hold shares which comprise of 57 percent of the new company, whilst the deal is forecast to give the business annual cost savings of C$540 million which are expected to be delivered at the end of 2018.