Enbridge announces simplification of corporate structure
Published by Lydia Woellwarth,
Enbridge Inc. today announced it has made, on behalf of itself and certain of its wholly owned US subsidiaries, separate all-share proposals to the respective boards of directors of its sponsored vehicles, Spectra Energy Partners, LP, Enbridge Energy Partners, LP, Enbridge Energy Management, LLC, and Enbridge Income Fund Holdings Inc., to acquire, in separate combination transactions, all of the outstanding equity securities of those sponsored vehicles not beneficially owned by Enbridge.
Highlights of the proposed restructuring:
- Enbridge to buy-in sponsored vehicles (EEP/EEQ, SEP and ENF) in exchange for Enbridge common shares.
- Fixed exchange ratios reflect an aggregate value of CAN$11.4 billion, or 272 million Enbridge common shares.
- Post-closing all sponsored vehicle equity security holders would hold the same publicly traded equity security in a streamlined corporate vehicle.
Benefits of the proposed restructuring to Enbridge and sponsored vehicle security holders:
- Simplifies and streamlines Enbridge's corporate and capital structure, bringing all of the core liquids and gas pipeline assets under the umbrella of one single listed entity.
- Increases trading liquidity, transparency and ease of investing in Enbridge's best-in-class pipeline and utility assets.
- Enhances Enbridge's credit profile by eliminating sponsored vehicle public distributions and increasing retention of cash flow to support self-funded growth.
- Addresses Enbridge's risks related to FERC MLP tax allowance elimination.
- If completed on the terms offered, anticipated to have a neutral impact on Enbridge's three-year financial guidance, with potential for positive impacts beyond 2020 due to tax and other synergies.
- Sponsored vehicle investors benefit from direct ownership in the largest energy infrastructure company in North America, with a well-diversified energy infrastructure asset base, an improved credit profile, enhanced trading liquidity and more sustainable dividends.
The proposed exchange ratios reflect a value for all of the publicly held equity securities of the sponsored vehicles of CAN$11.4 billion, or 272 million Enbridge common shares, if all are completed on the terms offered based on the closing price of Enbridge's common shares on the Toronto Stock Exchange (TSX) on 16 May 2018. The transactions as proposed are expected to be approximately neutral to Enbridge's three-year financial guidance and positive to Enbridge's post-2020 outlook due to tax and other synergies.
In December 2017, Enbridge outlined its 2018-2020 plan that emphasised several priorities, one of which was to assess the potential streamlining and simplification of its corporate structure. Enbridge has a long history of maximising shareholder value through strong operational performance and efficient capital management, including the sponsorship of its high-payout investment vehicles in the U.S. and Canada. The recent FERC income tax allowance policy reversal and the regulatory rate impact from the US Tax Cuts and Jobs Act (TCJA), as well as the market reactions across the MLP landscape, have challenged the standalone viability of SEP, EEP and EEQ as reliable and cost effective sources of capital to support Enbridge's growth. Similarly, ENF has lost its cost of capital advantage and is no longer an effective funding vehicle.
After evaluating options to mitigate the effects of these recent actions and the resulting capital markets' response, and to advance Enbridge's priority to simplify and streamline its corporate structure, Enbridge believes the proposals are strategically and economically attractive to each of the sponsored vehicles and to Enbridge shareholders. Enbridge expects to discuss the merits of each of the separate proposals with the respective independent committees of each vehicle, upon formation of these committees.
If the transactions are completed, all equity security holders of Enbridge and its sponsored vehicles would benefit from holding a single security that provides direct ownership in the largest energy infrastructure company in North America with best-in-class assets, a low-risk profile and attractive growth. These transactions offer several benefits to all equity security holders including a simplified structure, improved credit profile, enhanced trading liquidity and more sustainable dividends.
Under the newly changed FERC tax policy, holding certain interstate pipelines in MLP structures is highly unfavourable to unitholders and is no longer advantageous for Enbridge or the US MLPs. The combination of this changed policy and the negative capital markets reaction has impaired the MLP structure for Enbridge's interstate pipelines. Without this restructuring, and in light of the challenging capital markets conditions and the resulting impact on MLP cash flows, Enbridge's view is that EEP and SEP will face the cessation of distribution growth, and compromised distribution outlook to unitholders as early as 2019. Similarly, Enbridge's view is that ENF's uncompetitive cost of capital will inhibit future dividend growth.
Read the article online at: https://www.worldpipelines.com/business-news/17052018/enbridge-announces-simplification-of-corporate-structure/
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