09:25 AM EDT, 05/01/2017 (MT Newswires) -- Pembina Pipeline Corporation (PPL.TO, PBA) and Veresen Inc. (VSN.TO) entered Monday into an arrangement agreement to create one of the largest energy infrastructure companies in Canada with a pro-forma enterprise value of approximately $33 billion.
Andrew McCreath, fund manager and host on Canada's BNN TV, said he is surprised at the price that Pembina is paying at 13.9 times 2019 EBITDA. "That is a pretty rich price," he said, adding it is about five times free cash flow.
But, McCreath noted, the company says it will be "nicely accretive" given where interest rates are. He also noted Pembina shareholders will see a 5.9% increase in their dividend. McCreath said, bottom line is Pembina is paying a full price, but it is "hard to quibble with the logic of the deal" as there is little asset overlap. He said Veresen will substantially increase the scale of Pembina.
McCreath said clearly there is a "fair bit" of option valuation being paid for Veresen's Jordan Cove LNG, a 7.8 million tonne per annum natural gas liquefaction facility proposed to be constructed in Coos Bay, Oregon, and the associated Pacific Connector Gas Pipeline. McCreath noted there is support in the Trump Administration for the Jordan Cove project, although it has already been turned down twice.
Under the terms of the arrangement agreement, Pembina is offering to acquire all the issued and outstanding shares of Veresen by way of a plan of arrangement under the Business Corporations Act (Alberta). The transaction is valued at approximately $9.7 billion including the assumption of Veresen's debt (including subsidiary debt) and preferred shares.
Pembina is offering to acquire all of the outstanding Veresen common shares in exchange for either (i) 0.4287 of a common share of Pembina or (ii) $18.65 in cash, subject to pro-ration based on maximum share consideration of near 99.5 million Pembina common shares and maximum cash consideration of approximately $1.523 billion. Assuming full pro-ration, each Veresen shareholder would receive $4.8494 in cash and 0.3172 of a common share of Pembina for each Veresen common share. This offer represents a 21.8% premium to Veresen's 20 day weighted average price of $15.31 and a 22.5% premium to Veresen's closing share price of $15.23 on April 28, 2017.
The transaction was unanimously approved by the Boards of Directors of both companies and is expected to close late in the third quarter or early in the fourth quarter of 2017. The Transaction is subject to approval of at least 66.66% of holders of Veresen's common shares represented in person or by proxy at a special meeting of Veresen common shareholders to be called to consider the transaction, approval of the Court of Queen's Bench, certain regulatory approvals in Canada and the United States, and other customary conditions. Upon completion of the transaction, Pembina's common shareholders are expected to own approximately 80% of the combined company and Veresen's shareholders are expected to own approximately 20%. Affirming their belief in the value of the transaction, the Board of Directors and executive management of Veresen will elect to receive share consideration.
Furthermore, Veresen will be seeking approval of holders of outstanding Veresen preferred shares to effect the exchange of such shares for Pembina preferred shares with the same terms and conditions as the outstanding Veresen preferred shares. For such exchange to occur at closing of the Transaction, approval of at least 66.66% of holders of Veresen's preferred shares is required, voting as one class, represented in person or by proxy at a special meeting of Veresen preferred shareholders to be called to consider the transaction. Closing of the transaction is not conditional on the approval of the holders of Veresen's preferred shares.