CALGARY, Sept. 18, 2018 /CNW/ – Enbridge Inc. (TSX: ENB) (NYSE: ENB) (Enbridge) and Enbridge Income Fund Holdings Inc. (TSX: ENF) (ENF) today announced that they have entered into a definitive arrangement agreement (the Agreement) under which Enbridge will acquire all of the issued and outstanding public common shares of ENF (the Arrangement), subject to the approval of ENF shareholders.
Under the terms of the Agreement, each common share of ENF (ENF Share) will be exchanged for 0.7350 (the Agreed Exchange Ratio) of a common share of Enbridge (Enbridge Shares) and cash of $0.45 per ENF Share (the Cash Component). ENF shareholders will also be entitled to receive the Enbridge fourth quarter dividend as described below. The Agreed Exchange Ratio represents an increase of 9.8% relative to the unaffected ENF exchange ratio on May 16, 2018, and 11.3% inclusive of the Cash Component. The total transaction is valued at $4.7 billion, based on the closing price of the Enbridge Shares on the Toronto Stock Exchange (TSX) on September 17, 2018.
This Agreement, in conjunction with the definitive agreements reached with Enbridge Energy Partners, L.P. (NYSE: EEP) (EEP) and Enbridge Energy Management, L.L.C. (NYSE: EEQ) (EEQ) announced today, and the previously announced Spectra Energy Partners, LP (NYSE: SEP) (SEP) transaction on August 24, 2018, represent the achievement of significant milestones in the simplification of Enbridge’s corporate structure. Upon closing of these buy-in transactions, the rollup of these sponsored vehicles will streamline Enbridge’s corporate and capital structures and brings all of the core liquids and gas pipeline assets under the umbrella of a single publicly-traded entity to the benefit of all shareholders and unitholders.
Benefits and Considerations for ENF Shareholders
ENF’s sole asset is its investment in Enbridge Income Fund (the Fund) which owns interests in high quality liquids and gas pipeline systems controlled by Enbridge, including the Canadian Mainline Pipeline System. ENF shareholders will participate in a much larger and more diversified portfolio of assets and opportunities within Enbridge, providing exposure to a higher expected dividend growth rate post-2020 as well as enhanced dividend coverage and liquidity.
The Arrangement offers ENF public shareholders a compelling investment proposition in Enbridge Shares, including:
- Direct ownership in the largest energy infrastructure company in North America comprised of premium liquids transportation, natural gas transmission and natural gas distribution utility franchises that generate diverse, safe and reliable cash flows
- A strong expected 10% annual dividend growth rate through 2020 with substantially enhanced dividend coverage through a higher level of DCF per share compared to ENF standalone
- A diverse opportunity set for anticipated continued growth beyond 2020 that is supported by a strong cost of capital
- Increased opportunity for further meaningful capital appreciation as Enbridge advances its strategic priorities, including simplification of the Enbridge corporate structure, improved financial position and organic growth projects not currently available to ENF shareholders
- Enhanced trading liquidity and investment simplicity
- Automatic tax deferral on substantially all of the gain or ability for Canadian ENF shareholders to elect a full tax deferral
Also, as noted above, ENF shareholders will be entitled to Enbridge’s fourth quarter dividend and ENF’s monthly dividends through to closing of the Arrangement, subject to the adjustments as follows. If the Arrangement closes as expected before the record date for Enbridge’s fourth quarter dividend, expected to be November 15, 2018, to be paid in early December (the ENB December Dividend), an ENF shareholder will receive, as an ENB shareholder, the ENB December Dividend and the ENF dividend to be paid in November to ENF shareholders of record on October 31, 2018. In the event the Arrangement closes after the record date for the ENB December Dividend, the Cash Component will be increased for the ENB December Dividend based upon the Agreed Exchange Ratio less any dividends paid by ENF to its shareholders after November 30, 2018.
In addition, based on the closing price of the Enbridge Shares on the TSX on September 17, 2018, the Agreed Exchange Ratio together with the Cash Component represents an approximate 19% premium to the closing price of an ENF Share on the TSX on May 16, 2018, which was the last trading day immediately before the announcement of Enbridge’s offer to acquire the ENF Shares held by the public.
Benefits and Considerations for Enbridge Shareholders
The buy-in of ENF is strategically and economically attractive to current and future Enbridge shareholders and provides substantial benefits, including:
- Increased ownership in its core businesses and further enhancement of its industry-leading growth and low-risk business profile
- Significant advancement of Enbridge’s strategy to simplify and streamline its corporate structure which further increases the transparency of its strong cash generating assets
- Higher retention of cash generated from the ENF assets, which will support continued strong dividend coverage and self-funded growth
- An improved Enbridge credit profile due to the elimination of Fund distributions to ENF which are ultimately paid to the public, as well as opportunities to minimize the structural subordination of Enbridge debt
- Significant benefits to Enbridge’s post-2020 DCF outlook primarily due to tax optimization synergies
- No change to consolidated EBITDA following completion of the Arrangement since the assets indirectly held by ENF are already managed and operated by Enbridge and consolidated for accounting purposes by Enbridge
Considering this transaction, in combination with the SEP, EEP and EEQ buy-ins, there is no change to Enbridge’s current three-year financial guidance, including the 10% dividend growth rate through 2020, supported by several positive developments in the business, including the success of Enbridge’s recent asset divestiture program which has exceeded expectations.
As a result of the Arrangement, Enbridge would acquire all of the issued and outstanding public ENF Shares, which currently total 141.3 million shares, at the fixed Agreed Exchange Ratio of 0.7350 of an Enbridge Share for each ENF Share, plus the Cash Component of $0.45 per ENF Share. Based on the Agreed Exchange Ratio and current ENF Shares outstanding, Enbridge would issue an estimated 103.9 million Enbridge Shares in connection with the Arrangement, representing approximately 6% of the total number of Enbridge Shares outstanding.
A description of the Agreement will be set forth in Enbridge’s Current Report on Form 8-K that it expects to file with the Securities and Exchange Commission (the SEC) on EDGAR at www.sec.gov and with Canadian securities regulators on SEDAR at www.sedar.com, as well as in ENF’s Material Change Report to be filed on SEDAR.
The Arrangement has been approved by the board of directors of Enbridge. The board of directors of ENF (ENF Board) delegated to a special committee consisting solely of independent directors (ENF Special Committee) the authority to, among other things, review, evaluate and negotiate the Arrangement on behalf of ENF. The ENF Special Committee unanimously approved the Arrangement and recommended approval of the Arrangement to the ENF Board. In addition, Tudor, Pickering, Holt & Co., acting as financial advisor to the ENF Special Committee, has provided its opinion to the ENF Special Committee (subject to assumptions and qualifications) that the consideration to be received by ENF shareholders (other than Enbridge) pursuant to the Arrangement is fair, from a financial point of view, to such ENF shareholders (the Fairness Opinion). After considering, among other things, the recommendation of the ENF Special Committee and its receipt of the Fairness Opinion, the ENF Board has unanimously (with one director who is an officer of Enbridge abstaining) determined that the Arrangement is in the best interests of ENF and fair to the ENF shareholders (other than Enbridge) and unanimously (with one director who is an officer of Enbridge abstaining) recommends that such ENF shareholders vote in favor of the Arrangement.
The Arrangement is subject to the approval (i) by 66 2/3% of the votes cast by ENF shareholders present in person or by proxy at a special shareholders meeting (the Meeting) called to consider the Arrangement, and (ii) by a majority of the votes cast by ENF shareholders, present in person or by proxy at the Meeting, after excluding the votes cast by Enbridge, its affiliates and certain other related parties.
Closing of the Arrangement is expected to occur in mid-November 2018, subject to ENF shareholder approval at the Meeting to be scheduled later in the fourth quarter of 2018, the approval of the Court of Queen’s Bench of Alberta, regulatory approvals as required and other customary closing conditions.
A copy of the Agreement will be filed by Enbridge with the U.S. Securities and Exchange Commission and Canadian securities regulators, and will be available for viewing at www.sec.gov and at www.sedar.com. ENF shareholders will receive a copy of the Management Information Circular with respect to the Meeting. The Management Information Circular, as well as other filings containing information about the Arrangement including the Agreement, will also be available, without charge, on ENF’s website, www.enbridgeincomefund.com, and on www.sedar.com.
Scotiabank and BofA Merrill Lynch are acting as financial advisors to Enbridge. McCarthy Tétrault LLP, Sullivan & Cromwell LLP and Vinson & Elkins LLP are acting as Canadian, U.S. legal and tax advisors, respectively, to Enbridge.
Tudor, Pickering, Holt & Co. acted as financial advisor to the ENF Special Committee, while Norton Rose Fulbright Canada LLP acted as legal advisor to the ENF Special Committee.