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Goldman Sachs Weighs In On Enbridge-Spectra Deal

T.ENB | September 8, 2016

On Tuesday, Enbridge Inc (USA) (NYSE: ENB) announced it had entered into an agreement to acquire Spectra Energy Corp. (NYSE: SE) in an all-stock deal.

Goldman Sachs’ Theodore Durbin upgraded the rating on Enbridge from Neutral to Buy, while raising the price target from $43 to $48.

Durbin downgraded the rating on Spectra Energy from Buy to Neutral, while raising the price target to $42.

“The proposed transaction is subject to shareholder vote and regulatory approval,” the analyst mentioned.

What The Deal Means For Enbridge

Durbin believes Enbridge’s medium-term growth outlook is robust, although there could be a decline in large-scale organic project associated with the oil sands, which could be a risk to long-term growth.

“We believe a willingness to pursue strategic M&A could create a clearer growth trajectory, better potential diversification, and greater ability to de-lever,” the analyst stated, while adding that the Spectra Energy acquisition was likely to be 2 percent accretive to 6 percent dilutive to the company’s long term ACFFO/share.

“We continue to favorably view SE’s portfolio of natural gas assets underpinned by fee-based contracts,” Durbin went on to say.

Implications Of The Deal

The analyst believes the proposed Enbridge-Spectra Energy transaction highlights the value of existing pipeline assets, as well as visibility into the project backlog against the backdrop of a challenging environment for organic growth.

Durbin also believes the transaction highlights the value of natural gas infrastructure, stating, “Deceleration in midstream capex could encourage companies to pursue acquisition opportunities to sustain growth.”

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