Judging by this week’s $4.3 billion sale of its Canadian natural gas gathering pipelines and processing facilities, the big-picture debt reduction strategy at Enbridge Inc. continues to play out.
Under a multi-pronged plan announced in late 2017, the Calgary-based company will continue to sell assets, even those that were once considered core; will narrow the scope of its business; and will continue to simplify its corporate structure. The latest sale is its third this year, with the three dispositions resulting in about $7.5 billion in proceeds.
The plan seems to be having a positive effect on investors: Enbridge’s share price has rebounded somewhat after bottoming out at $37.36 in May.
But with a current TSX short position of 36.822 million shares — up a touch from two weeks earlier— Enbridge has the dubious honour of being the fourth most shorted stock on the TSX. Clearly there are some skeptics, though short sales can occur for a variety of reasons, other than a negative view of the company.
Given what has been done so far, Enbridge’s financial team has been busy. And that team has at least one more major transaction to complete: the plan announced in early May to simplify its corporate structure by acquiring all of the outstanding sponsored vehicle equity securities — an $11.4 million transaction at the time it was proposed. The transactions — which will result in those equity holders receiving shares in Enbridge — require shareholder approval.
Two of those SVE’s are in the U.S. while the other, Enbridge Income Fund Holdings (ENF), is based in Canada. Since that announcement, news has been rather scarce, though ENF said it had set up “a special committee of independent directors to review and consider the proposal.” ENF said the proposed transaction is subject to “conditions, including the review and favorable recommendation by the special committee.”
That proposed transaction, is of the most interest to Canadians because ownership in the company is largely held by retail investors — all of whom are looking for an attractive takeout price. At the time of the announcement, Enbridge proposed to acquire ENF for a five per cent premium — by any means a rather skinny incentive.
“I always had a soft spot for mom and pop investors,” said one former professional money manager who now manages his own investments, one of which is a stake in Enbridge Income Fund, and who is looking for a tad more incentive.
This manager argues that because of ENF’s investor base, ENB needs to be seen to be doing the right thing, especially given the many occasions retail investors have, over the years, supported its many equity raises. (At the end of 2017, Enbridge had $7.747 billion in outstanding preferred shares.)
He makes the case that the original Enbridge proposal is short in two main ways: the premium is not high enough, requiring another $1 to $1.50 lift.
“I am not greedy, I know what’s reasonable,” he said.
Secondly, from an income perspective, he argues ENF investors will be a little short changed. Here are the numbers: Enbridge pays $0.671 a quarter or $2.684 a year; ENF pays out $0.1883 month or $2.26 a year. However, because of the exchange ratio, ENF investors now stand to receive $1.89 a year.
“I am mostly concerned about the dividend income differential between now and say 2021,” noted this manager.
Over that four year period that $0.37 a share difference amounts to $1.48 — enough to buy a cup of coffee.
Another investor, who has written to ENF’s board pointing out that “they have a fiduciary duty to get a better offer as the deal initially presented was inadequate,” supported this former manager’s views.
The pressure is on.
Reached this week, an Enbridge spokesperson said: “We have no update.”