Pembina Pipeline (TSX: PPL) has announced a significant agreement with Enbridge Inc. (TSX: ENB) to acquire Enbridge’s interests in the Alliance, Aux Sable, and NRGreen joint ventures for an aggregate purchase price of approximately $3.1 billion, including assumed debt. The move aligns with Pembina’s strategic goals, enhancing its market position and increasing exposure to lighter hydrocarbons.
The acquisition is set to close in the first half of 2024 pending regulatory approvals. Pembina’s President and CEO, Scott Burrows, commented on the deal, stating, “This is a rare opportunity to consolidate interests in these assets at an attractive valuation multiple, with cash flow accretion and significant synergy potential.”
The cash portion of the deal, approximately $1.1 billion, will be funded through a bought deal offering of subscription receipts and existing credit facilities. The acquisition is expected to be immediately accretive to adjusted cash flow per share, with mid-single digit accretion anticipated in the first full year of ownership.
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The offering, involving 26,000,000 subscription receipts at $42.85 each, is expected to close on or about December 19, 2023. Pembina has granted the underwriters an over-allotment option to purchase up to an additional 3,900,000 subscription receipts.
Jaret Sprott, Senior Vice President & Chief Operating Officer, emphasized the positive relationship between Pembina and Enbridge, stating, “Enbridge is a world-class company, with similar values focused on safety, people, customers, and the communities in which we operate.”
The acquisition is structured to be leverage neutral, maintaining Pembina’s financial flexibility for future projects. Pembina anticipates an attractive acquisition multiple of approximately 9x 2023 and 2024 forecasted adjusted EBITDA, inclusive of synergies.
Enbridge’s CFO, Pat Murray, highlighted the transaction as part of their capital recycling program, expressing satisfaction with the attractive valuation. Enbridge will receive $3.1 billion for its 50% interest in Alliance and 42.7% interest in Aux Sable. Cynthia Hansen, EVP and President, Gas Transmission and Midstream, stated, “The Alliance and Aux Sable system has been a reliable and profitable asset for Enbridge for many years.”
The effective date of the transaction is January 1, 2024, with the closing expected in the first half of 2024. Enbridge’s 2024 financial guidance and near-term growth outlook through 2025 remain unchanged.
Investors can expect updated 2024 guidance from Pembina before the closing of the acquisition. In connection with the acquisition, Pembina settled all claims between Aux Sable and a third party related to a natural gas liquids supply agreement. The company contributed approximately $145 million to Aux Sable, representing Pembina’s proportionate share of the claim.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
