Enbridge, Canada’s largest pipeline company, said yesterday it would buy Spectra Energy Corp in an all-stock deal valued at about C$37bn ($28bn) to create the largest North American energy infrastructure company.
Enbridge’s biggest-ever deal comes as the company has been steadily expanding its North American pipeline network, which carries the bulk of Canadian crude oil to the United States.
Spectra shareholders will get 0.984 shares of the combined company for each share held.
This is equivalent to $40.33 per share, representing a premium of about 11.5% to Spectra’s closing price on Friday.
The deal has a pro-forma enterprise value of C$165bn, the companies said.
Spectra’s total long-term debt stood at $13.58bn as of June 30.
Spectra shares were up 5.8% at $38.25 in light premarket trading.
Enbridge’s US-listed shares were down 1.8% at $40.25.
Enbridge chief executive Al Monaco will lead the combined company, which will have its headquarters in Calgary.
Greg Ebel, Spectra’s CEO, will be non-executive chairman.
After the close of the deal, Enbridge shareholders will own about 57% of the combined company, which is expected to deliver annual run-rate synergies of C$540mn, most of which is expected to be achieved in late 2018.
Enbridge said it planned to divest about $2bn of non-core assets over the next year to stay financially flexible.
The deal is the second big one by a Canadian company for a US pipeline operator in recent months.
TransCanada Corp, Canada’s second-largest pipeline company, completed its $10.2bn takeover of Columbia Pipeline Group in July.
Houston-based Spectra, which operates in both Canada and the United States, has 21,000 miles (33,800km) of natural gas and oil pipelines and storage for about 300bn cubic feet (8.5bn cubic meters) of natural gas storage and 4.8mn barrels of crude oil.
Spectra’s shares have jumped about 51% since the start of the year, handily outperforming its peers on the Dow Jones US Pipelines index even as low crude prices continued to drag on the North American oil and gas industry.
Enbridge bought a minority stake in the Bakken Pipeline system through a joint venture last month.
It also won an auction for a stake in EnBW’s Hohe See, one of Europe’s largest offshore wind power projects, according to a source familiar with the matter.
Credit Suisse Securities (Canada) and RBC Capital Markets were Enbridge’s financial advisers, while Sullivan & Cromwell and McCarthy Tétrault were its legal advisers.
BMO Capital Markets and Citi were Spectra Energy’s financial advisers and Wachtell, Lipton, Rosen & Katz and Goodmans its legal advisers.
Skadden, Arps, Slate, Meagher & Flom advised Spectra on tax issues. The deal is expected to close in the first quarter of 2017.