Pembina Pipeline Offers to Buy Rival Inter Pipeline for C$8.3B; Shares Down 3%


Pembina Pipeline (PPL) shares fell more than 3% after the company announced it has signed a deal to acquire Inter Pipeline (IPL) for C$8.3 billion in stock, creating one of Canada’s largest energy infrastructure companies. Shares of Inter Pipeline jumped more than 7% following the announcement.

Pembina Pipeline provides transportation and midstream services to North America’s energy industry, while Inter Pipeline transports, processes, and stores energy products in Western Canada.

As part of the deal, Inter Pipeline shareholders will receive half a Pembina share for each Inter Pipeline share held. The offer is valued at C$19.45 per share based on the closing price of Pembina shares on May 31. Pembina shareholders are expected to own 72% of the combined company, while Inter Pipeline shareholders will own 28%.

Pembina’s Chair of the Board of Directors Randy Findlay said, “It represents a compelling opportunity to continue building on our respective low-risk, long-term, fee-for-service business model, expand our customer service offerings, and create significant value through the realization of synergies, vertical integration and high return growth opportunities. Pembina’s strategy of maximizing the value of its products through global market access is strengthened with the addition of HPC, which will allow us and our customers to benefit from additional margin capture. A core part of our strategy is the commitment to ESG, including making investments to enhance the long-term sustainability of our business and reducing the carbon intensity of what we do.”

The companies said they expect near-term pre-tax synergies of between C$150 and C$200 million annually.

The transaction is expected to close in the fourth quarter of 2021. (See Pembina Pipeline stock analysis on TipRanks)

Following Pembina’s Q1 results, National Bank analyst Patrick Kenny reiterated a Hold rating on PPL, while raising its price target to C$39.00 from C$38.00. This implies approximately 3% upside potential from current price levels.

Kenny said during an earnings call that the PPA (power purchase agreement) with TransAlta (TA) ticks the ESG box nicely.

Overall, consensus among analysts is a Moderate Buy based on 5 Buys and 6 Holds. The average analyst price target of C$40.54 implies almost 7% upside potential to current levels.

TipRanks’ Smart Score

PPL scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock returns are likely to beat the overall market.

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