Benzinga | Jun 4, 2021 07:14AM EDT

Brookfield Infrastructure Partners Issues Response To Inter Pipeline, Files Notice Of Variation, Change, Extension Of Terms Of Offer At C$19.75/Share

Offer Highlights

* Aggregate cash and share-based consideration totalling C$19.751 per Inter Pipeline Ltd. (TSX:IPL) ("IPL" or the "Company") share representing a 4.4% premium to the Pembina Pipeline Corporation ("Pembina") share-based offer valued at C$18.91 per share (the "Alternative Transaction") as of market close on June 1, 2021.

* Cash component of the Offer represents 74% of the total consideration, compared to zero in the Alternative Transaction.

* Brookfield Infrastructure has received all key regulatory and anti-trust approvals and our Offer is open for Tender until June 22nd with take-up and payment within three business days thereafter.

* Preserves significant local Canadian jobs compared to IPL's alternative cost synergy-driven transaction.

__________________1 Based on assumed 74% cash, 26% share proration and the closing price of the BIPC Shares on the TSX on June 1, 2021.

BROOKFIELD, NEWS, June 04, 2021 (GLOBE NEWSWIRE) -- Brookfield Infrastructure Partners L.P. (NYSE:BIP, TSX:BIP), together with its institutional partners (collectively, "Brookfield Infrastructure") has filed a notice of variation, change and extension (the "Notice of Variation") in respect of the offer commenced on February 22, 2021 (such varied offer, the "Offer") to acquire all of the outstanding common shares of IPL.

Response to IPL Press Release

We note IPL's press release issued yesterday in which the IPL Board of Directors ("IPL Board") reiterated their support for the arrangement agreement entered into with Pembina on June 1st in an all-share transaction. We do not believe that any of the justifications provided by the Company outweigh the overwhelming factors laid out in our press release of June 2nd supporting the superiority of our 74%/26% cash/share offer when compared to the all-share, Alternative Transaction. We also would note the following omissions from the IPL Board's analysis:

* As IPL's largest shareholder, with 9.75% ownership of IPL shares and a total economic interest in the Company of 19.65%, we are not supportive of the all-share, Alternative Transaction and intend to vote against it. In the event the Alternative Transaction is successful, Brookfield Infrastructure will become a significant shareholder in Pembina with up to an approximately C$1.6 billion economic interest ("Brookfield Block"). Brookfield Infrastructure does not intend to be a long-term investor in Pembina. The Brookfield Block, in addition to the shares then held by event-driven funds and any other institutional shareholders who lack desire to own shares in Pembina, will therefore create a substantial and protracted overhang on Pembina's shares. The IPL Board and its advisors ought to have considered these obvious factors in making its determination of the value of the all-share consideration offered in the Alternative Transaction.

* The Alternative Transaction will require a lengthy timeline to closing, accompanied by uncertainty due to numerous conditions to which the Offer from Brookfield Infrastructure is not subject. The Alternative Transaction exposes IPL shareholders' all-share consideration to a host of risks, which do not appear to have been appropriately evaluated against our Offer by the IPL Board. For example, as of June 1st, the required regulatory and antitrust reviews under the Alternative Transaction were yet to commence and given the overlap between the two companies, we see uncertainty in the outcome and timeline of these reviews. Furthermore, failure to receive certain regulatory approvals would enable Pembina to terminate the transaction without an obligation to pay IPL the reverse termination fee. These considerations, along with typical business environment risks such as commodity price volatility, changes in interest rates and potential tax code changes, expose the all-share consideration to valuation risk due to the protracted closing timeline.

* We find it highly surprising that the IPL Board would be advocating for an all-share proposal when feedback from the IPL Special Committee and its advisors, during our interactions with them, indicated they favoured an all-cash offer. Were the IPL Board genuinely interested in advocating for share consideration on behalf of shareholders of IPL, they would be required to take into account Brookfield Infrastructure's long history of generating attractive value for shareholders. The IPL Board made no inquiries regarding the growth opportunities and outlook for Brookfield Infrastructure. We have US$2.3 billion of contracted backlog and are targeting investments of US$2 billion annually in growth initiatives. With the current favourable economic backdrop, we are optimistic we can build upon our strong track record where over the past decade we have been able to grow our dividend by an average of 10% per annum and have generated average annual total shareholder returns of 18%.

Total Return Over Time 1 Year 3 Year 5 Year 10 YearIPL (As of Feb. 10) -35% -25% -9% 59%PPL (TSX) 18% 1% 29% 163%BIPC (TSX) 55% n.a. n.a. n.a.BIP (NYSE) 39% 84% 168% 485%S&P/TSX Composite 35% 37% 65% 100%S&P 500 Index 40% 62% 120% 292%Note: Based on market data as of June 1, 2021, except where otherwisenoted.

As we stated in our previous press release on June 2, 2021, we believe IPL's Board erred in concluding that the Alternative Transaction is a superior proposal for IPL shareholders. This error, combined with the highly favourable terms granted by the IPL Board to Pembina, including an egregious break fee, suggests a prioritization of defeating the Offer over achieving the best outcome for all stakeholders. Regardless, by bringing our Offer forward, IPL shareholders will have the opportunity to decide for themselves with the benefit of full transparency.

The Notice of Variation and related documents have been filed with the Canadian securities regulators on SEDAR under IPL's profile at www.sedar.com and will be mailed to all IPL shareholders.

Under the terms and subject to the conditions of the Offer, as varied by the Notice of Variation, each IPL shareholder will have the ability to elect to receive, per IPL share, either C$19.50 in cash or 0.225 of a Brookfield Infrastructure Corporation (NYSE:BIPC, TSX:BIPC) class A exchangeable share ("BIPC Share"), subject to pro-ration with maximum cash consideration of approximately C$5.56 billion (representing 74% of the total consideration) and maximum BIPC Shares issued of 23.0 million aggregate shares (representing 26% of the total consideration), respectively. IPL shareholders may elect cash consideration in respect of a portion of their IPL shares and BIPC Shares in respect of a portion of their IPL shares. The share exchange ratio has been calculated based on the closing price of the BIPC Shares on May 28, 2021, consistent with Brookfield Infrastructure's final proposal presented privately to IPL's Special Committee. The Offer also includes an option for eligible Canadian shareholders to access a tax deferred rollover in respect of any BIPC Shares received pursuant to the Offer.

In the event of pro-ration, for those eligible shareholders who elect to receive 100% of their consideration in BIPC Shares on a tax-deferred rollover basis, the 23.0 million maximum BIPC Shares issuable under the Offer would be increased up to an incremental 8 million BIPC Shares (with such incremental shares priced at the fair market value as of the expiry date of the Offer, in lieu of cash) to ensure every eligible shareholder who may elect to receive 100% of their consideration in BIPC Shares on a tax-deferred basis has an ability to maximize the amount of tax-deferred consideration they receive.

The consideration under the Offer was valued at C$19.75 per IPL share on June 1, 2021, based on the closing price of the BIPC Shares on that day, the last trading day prior to Brookfield Infrastructure's announcement of its intention to revise the Offer, and assuming a mix of 74% cash consideration and 26% BIPC Share consideration due to prorating.

The Offer is open for acceptance until 5:00 p.m. (Mountain Standard Time) on Tuesday, June 22, 2021.

Offer Details

Pursuant to the Notice of Variation, Change and Extension, Brookfield Infrastructure has satisfied or waived certain conditions to the Offer, including receipt of key regulatory approvals, absence of material changes to IPL's business, Brookfield Infrastructure owning not less than 66% of the IPL Shares, calculated on a fully diluted basis, after taking up IPL Shares deposited under the Offer and not withdrawn and confirmation that the IPL shareholder rights plan will not adversely affect the Offer. The Offer remains subject to the non-waivable statutory condition that more than 50% of the outstanding IPL Shares, excluding IPL Shares beneficially owned by Brookfield Infrastructure, are deposited under the Offer and not withdrawn.

Brookfield Infrastructure encourages IPL shareholders to read the full details of the Offer set forth in the original Offer to Purchase and Circular dated February 22, 2021 (the "Offer and Circular") and the Notice of Variation, Change and Extension, which contains the full terms and conditions of the Offer and other important information as well as detailed instructions on how IPL shareholders can tender their IPL shares to the Offer.

IPL shareholders who have questions or require assistance in depositing IPL shares to the Offer, IPL shareholders should contact the Information Agent and Depositary, Laurel Hill Advisory Group, by telephone at 1-877-452-7184 (North American Toll Free Number) or 416-304-0211 (outside North America) or by email at assistance@laurelhill.com.

Copies of the Offer and Circular and the Notice of Variation, Change and Extension are available without charge on request from the Information Agent and are available at www.ipl-offer.com or on SEDAR at www.sedar.com.