Proposal Details .. RBC Is Expecting $17.00 - $20.00This is a complicated process. Here are my thoughts on the potential timing.
- Currently no legal offer exists (press releases don't count)
- Once an offer is received, Brookfield must ask IPL for a shareholder mailing list.
- IPL could delay sending Brookfield a sharehold mailing list for several months.
- After delaying, IPL could grant Brookfield permission for due diligence that could take
several months.
- IPL could grant another potential suitor due diligence that could take severeal more
months.
- Once the Brookfield offer is received by shareholders, it will take more than 3 months to
complete. Time starts when the offer has been mailed.
- If IPL announces a material change to the organization after the offer is issued (ie: sale of
storage, partner for Heartland), Brookfield would have to ammend and reissue the offer.
- Brookfield must get 66 2/3 acceptance (including their 19%) before they can force IPL
shareholders to sell.
Looking at the timeline, we could easily see a 7 month delay before results are known. 7 months (Oct 2021) is a long time for things to change for better or worse.
RBC is forecasting a buyout range of $17.00 - $20.00. Below are the details of the process from RBC.
Summary of Brookfield’s proposed privatization of Inter Pipeline
·Offer price of C$16.50/share... Under the intended privatization transaction,BIP and its institutional partners will offer to acquire all of the outstanding common shares of Inter Pipeline (IPL) that it does not already own at $16.50 per IPL share. This price represents a 23% premium to the closing IPL share price of $13.40 on February 10, 2021.
·... with upside potential. BIP’s offer price is based exclusively on publicly available information. BIP noted that it has made prior proposals to IPL with an objective of receiving access to confirmatory due diligence to support a valuation for IPL above the offer price, indicatively in the range of $17.00 to $18.25 per IPL share. Any ability for BIP to increase the offer would be predicated on, among others, being granted the ability to perform customary confirmatory due diligence, including to substantiate the growth potential, timeline and commercialization objectives for Heartland Petrochemical Complex (HPC).
·BIP is currently the largest investor in IPLwith an aggregate economic interest totaling 19.6% of IPL shares. BIP holds an aggregate economic interest of 84.3 million IPL shares, representing approximately 19.65% of the issued and outstanding shares of IPL on an undiluted basis. This position, which BIP began accumulating since the beginning of March 2020, is comprised of:
- 41.8 million IPL shares (i.e., roughly 9.75% of outstanding IPL shares); and
- Economic exposure to an aggregate 42.5 million of IPL shares througha cash-settled total return swap, which affords BIP with economic exposure comparable to beneficial ownership, but does not give BIP any right to vote, or direct or influence the voting, acquisition, or disposition of any IPL shares.
·Fully financed offer through cash and/or BIPC shares. Each IPL shareholder will have the ability to elect to receive, per IPL share, $16.50 in cash or 0.206 of a BIPC class A exchangeable share, which is calculated based on the closing price of the BIP shares on February 10, 2021 (i.e., $79.97/share or US$62.91/share). The offer is fully financed, with a maximum cash consideration of approximately C$4.9 billion and a maximum aggregate number of BIPC shares issued of approximately 19 million, with these amounts representing 76.2% and 23.8% of the offer’s total consideration, respectively.
Offer subject to certain conditions, including:
- Receipt of all necessary regulatory approvals;
- Customary approval by the TSX and NYSE in relation to the issuance and listing of the additional BIPC shares contemplated by this offer;
- BIP owning not less than two-thirds of the IPL shares, calculated on a fully diluted basis, after taking up IPL shares deposited under the offer and not withdrawn. The offer is premised on there being roughly 429.2 million IPL shares outstanding on a fully diluted basis. Of note, once this twothirds percentage acceptance level is met, BIP intends, but will not be required, to take steps to acquire all remaining IPL shares in accordance with applicable law.
- Next steps. BIP remains open to engaging directly with IPL, and will request a shareholders’ list from IPL, with an expectation of mailing the offer and a takeover bid circular to IPL's shareholders as soon as practical upon receipt of this list. The offer will be open for acceptance for 105 days following the commencement of the offer as a "permitted bid" under IPL’s existing shareholder rights plan.
Price target/base case
As we expect a transaction to materialize, our $17.00 price target is based on the low-end of Brookfield Infrastructure's potential valuation range should it be allowed to conduct confirmatory due diligence (i.e., $17.00-18.25) and modestly above Brookfield Infrastructure's current approach at $16.50.
Upside scenario
Our upside scenario of $20.00 is based on a 10% premium to the high-end of Brookfield Infrastructure's indicative offer should it be allowed to conduct confirmatory due diligence. The 10% premium takes into account the potential for another party to make a superior takeover offer.