Pembina Buys Inter Pipeline For $8.3 Billion In All-Stock Deal

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Pembina Pipeline Corp. (TSX:PPL) has agreed to acquire Inter Pipeline Ltd. (TSX:IPL) for $8.3 billion in an all-stock deal that will create one of the largest energy companies in Canada.

The Pembina-Inter combination is the largest Canadian energy transaction in four years. It continues a trend of consolidation in the sector in the face of low oil prices and regulatory uncertainty, highlighted by U.S. President Joe Biden’s cancellation of TC Energy Corp.’s (TSX:TRP) Keystone XL oil export pipeline this past January.

The proposal from Pembina trumps a hostile takeover offer for Inter Pipeline made by Brookfield Infrastructure Partners LP earlier this year. Inter Pipeline spurned that approach and began a review of its options, which included a sale.

Buying Inter Pipeline will give Pembina additional pipeline infrastructure across Western Canada, connecting the region’s oil sands and natural gas producers with domestic and foreign customers.

Pembina, a major processor of natural gas liquids, will increase its ability to deliver condensate on Inter Pipeline’s system to the oil sands, where the product is used to dilute the thick bitumen that’s dug out of the ground so that it can be transported by pipeline or rail.

The two Calgary-based pipeline companies said the takeover will lead to annual cost savings of as much as $200 million and create an operator with capacity to transport 6.2 million barrels a day of gas, oil and natural gas liquids. The merged company will be run by Pembina’s senior executive team.

Pembina said its offer values Inter Pipeline at $19.45 a share, while Brookfield’s offer was $16.50. Inter Pipeline shares rose 8.8% to $19.09 while Pembina fell 1.9% to $38.15 on news of the acquisition.

Pembina will also take on Inter Pipeline’s Heartland Petrochemical Complex, which is under construction in Alberta. Inter has been looking for a partner to help fund the $4.2 billion construction cost while also trying to sign long-term sales contracts for 70% of the plant’s capacity.