Enbridge Income Fund Holdings Inc. EBGUF

TD Waterhouse Response

[hawk35]

Enbridge Income Fund Holdings Inc.
(ENF-T) C$27.98
Share Exchange Offering from ENB as part of Simplification Plan
Linda Ezergailis, P.Eng.
Max Peters, CA, (Associate)
 
Event
 
Enbridge Inc. (ENB) has announced an all-share proposal for Enbridge Income
Fund Holdings Inc. (ENF) shareholders of 0.7029 share of ENB common shares
for each ENF share which represents a value of CAD$29.38 and a 5% premium
to the closing price of ENF's common shares as of market close on May 16, 2018.
 
Impact: MIXED
 
Extends Growth Outlook: ENB believes that ENF's ability to effectively raise
capital with a cost of capital advantage has weakened. This potential transaction
could extend the organic growth outlook for ENF beyond 2020, especially
considering the upcoming CTS renegotiation. ENF's current growth portfolio
beyond 2018 is concentrated on the Line 3 Replacement (L3R) program, so we
view the opportunity for shareholders to participate in ENB's $22 billion diversified
secured growth portfolio as a positive.
 
Diversification of Business: After the proposed transaction, ENF shareholders
would benefit from a more diverse asset base including liquids pipeline growth.
ENF shareholders could benefit from an overall more simplified and streamlined
Enbridge structure as well as more sustainable dividends.
 
Liquidity Enhancement: Post the proposed transaction, the trading liquidity
would be significantly enhanced which would be a benefit for current shareholders.
 
First Glance, Mixed Benefits for ENF Shareholders: More details of the
proposed transaction are needed, but based on our initial assessment, we
view this potential transaction as likely positive for ENF shareholders from a
simplification perspective, but it could be slightly dilutive from a free cash flow
perspective. We were surprised that the timing of the announcement came before
the Minnesota L3R regulatory decision.
 
Next Steps: The proposed transaction is subject to approval by 66.67% of
the outstanding ENF shareholders and by a majority of the public shareholders
excluding ENB, its affiliates, or insiders.