Shares in Pembina Pipeline Corp. drifted lower Wednesday morning after it announced it would buy Kinder Morgan Canada Ltd. and the U.S. portion of the Cochin pipeline system in deals it valued at a total of about $4.35 billion.
Pembina traded down as much as 1.8 per cent or 90 cents from Tuesday’s close while Kinder Morgan rose by as much as 35 per cent or $3.86 on the Toronto Stock Exchange.
The companies estimated the Pembina offer for Kinder Morgan represented a 38 per cent premium to its Tuesday close.
“This acquisition is highly strategic for Pembina, providing enhanced integration with our existing franchise, entrance into exciting new businesses and clear visibility to creating long-term value for our shareholders,” said Pembina CEO Mick Dilger in a news release.
“It represents an ideal opportunity to continue building on our low-risk, long-term, fee-for-service business model while extending our reach into the U.S. through a highly desirable cross-border pipeline.”
The Cochin pipeline owned in partnership by Kinder Morgan Canada and its American parent, Kinder Morgan Inc., runs 2,900 kilometres between Fort Saskatchewan, northeast of Edmonton, and Chicago and has a design capacity of up to 110,000 barrels per day.
It imports into Canada a prized light petroleum called condensate which is used to dilute oilsands bitumen to allow it to flow in a pipeline.
The deal also includes an Edmonton storage and terminal business and Vancouver Wharves, a bulk storage and export-import business.
“We believe KML’s assets will be a great fit with Pembina’s business and this transaction is highly beneficial to KML’s shareholders,” said Steve Kean, CEO of both Kinder Morgan Canada and its 70 per cent owner, U.S.-based Kinder Morgan, Inc.
“This transaction gives KML’s public shareholders the opportunity to participate in a larger and growing platform of North American midstream energy assets.”
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Pembina is offering 0.3068 of a Pembina share per Kinder Morgan Canada share and class B unit. The acquisition is valued at approximately $2.3 billion including the assumption of Kinder Morgan Canada’s preferred shares and outstanding net debt.
In addition, Pembina is paying roughly $2.05 billion in cash for Kinder Morgan Cochin LLC, which holds Cochin US.
Kinder Morgan Canada was spun off from its American parent in mid-2017 to raise money to build the Trans Mountain pipeline expansion but it sold the pipeline and its expansion project to the federal government for $4.5 billion last summer.
It announced in May it had decided to remain a stand-alone public company after a strategic review of options that could have included the sale of part or all of the corporation.