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Brookfield Infrastructure hostile offer unanimously rejected by Inter Pipeline board

Inter Pipeline's Heartland Petrochemical Complex in Fort Saskatchewan, Alta. is shown in this undated handout photo. THE CANADIAN PRESS / handout, Inter Pipeline / Ewan Nicholson

A hostile takeover offer by Brookfield Infrastructure Partners LP that values Inter Pipeline Ltd. at $7.1 billion has been officially rejected by the target company.

Inter Pipeline said Tuesday its board unanimously recommends shareholders reject the bid based on advice from its financial and legal advisers, and the recommendation of a special committee of independent directors.

Read more: Inter Pipeline urges shareholders to ignore Brookfield bid, wait for review results

“At the end of the day, the board really feels, after lots of discussion with its independent financial advisers, that the bid undervalues what is ultimately a great business,” said CEO Chris Bayle in an interview.

“It certainly doesn’t reflect the strength in energy and petrochemical pricing we’ve seen over the past few months, which has been very material, and, finally, doesn’t reflect the step change in cash flow that we expect from the Heartland petrochemical project beginning in early 2022.”

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Brookfield launched a formal takeover bid for Inter Pipeline last month. It is offering $16.50 per share in cash or 0.206 of a Brookfield Infrastructure Corp. class A exchangeable share, with the maximum cash available set at $4.9 billion. The offer is expected to expire on June 7.

Brookfield has said it previously discussed prices with Inter “in the range of $17 to $18.25” per share but said it would need to study its books to “substantiate” the growth potential and commercialization objectives for its $4-billion Heartland Petrochemical Complex before increasing its offer.

On Tuesday, Inter Pipeline said a bid would have to be $20 per share just to approximate its peers’ median trading multiple to expected 2023 cash flows.

“Brookfield’s hostile bid of $16.50 per share does not come close to reflecting these important valuation considerations,” it said.

Read more: Brookfield and its partners formally launch hostile bid for Inter Pipeline

In January, after Brookfield’s initial approaches, Inter Pipeline said it told Brookfield it would need a $24 a share offer to proceed with an exclusive sales process.

Inter Pipeline shares rose by about two per cent to as much as $18.27 each on Tuesday.

Inter Pipeline launched a review of strategic alternatives last month. Bayle confirmed the company’s confidential data room for potential suitors is open, but said he’s not allowed to say whether Brookfield has accessed the room, or if it has recently met with Inter Pipeline representatives.

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Bayle said the company would release details on Heartland’s contracts and earnings potential before its first-quarter 2021 reporting date. The facility under construction northeast of Edmonton, designed to turn propane into plastic pellets for export to manufacturers, is expected to be placed in service in 2022.

Bayle said Tuesday Inter Pipeline is continuing to seek a partner for the Heartland complex and still expects to conclude that process in the first half of 2021.

Last spring, due in part to effects of the COVID-19 pandemic, Inter hiked the expected cost of the complex by $500 million from the original $3.5 billion.

About $3.2 billion had been spent on the Heartland project as of the end of 2020.

Analysts have said they expect a higher price will be required to persuade Inter Pipeline investors to tender their shares.

Brookfield Infrastructure already owns 41.8 million Inter Pipeline shares or 9.75 per cent of its outstanding shares, plus a cash-settled total return swap that gives it economic exposure to an additional 42.5 million Inter Pipeline shares.

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