Enbridge $11.4B stock offer

Photo: The Canadian Press

Enbridge Inc. announced a restructuring plan Thursday that would see it offer $11.4 billion in shares to co-investors in four affiliated businesses, in order to offset risks caused by the loss of a U.S. tax allowance for certain interstate pipelines.

If the series of transactions unfold as anticipated, investors in all the companies and limited partnerships would hold shares in Enbridge, one of North America's largest energy infrastructure companies.

The Calgary-based company holds pipelines in the United States that are losing tax advantages previously provided to so-called master limited partnerships, or MLPs. Enbridge has two MLPs, Enbridge Energy Partners, and Spectra Energy Partners.

The U.S. Federal Energy Regulatory Commission decision to end the tax breaks in March came in response to a 2016 court ruling that found its long-standing tax policy could result in double recovery of costs for MLPs.

The company's move comes after Enbridge had already begun to simplify its organizational structure.

"Having all of our core assets under one roof will further surface the value of these highly strategic and irreplaceable systems, which should attract a premium valuation," chief executive Al Monaco told analysts Thursday.

He added that the moves would be good for credit ratings and funding arrangements because 100 per cent of the cash flow generated by the assets would be "kept in the family and not paid out in third-party distributions."

Earlier this month, the company announced more than $3 billion in asset sales in a pair of deals including a $1.75-billion agreement to sell a 49 per cent stake in a group of renewable power assets to the Canada Pension Plan Investment Board. In a separate deal, Enbridge said it will sell Midcoast Operating LP to an affiliate of private equity firm ArcLight Capital Partners LLC for about $1.44 billion.

Under the series of deals announced Thursday, Enbridge is proposing separate all-share offers with the boards of Spectra Energy Partners, L.P., Enbridge Energy Partners, L.P., Enbridge Energy Management, L.L.C. and Enbridge Income Fund Holdings Inc., offering them company shares worth a total of roughly $11.4 billion based on current stock prices.

While Enbridge is the leading investor in each of the businesses, which are considered "sponsored vehicles," each has a board with a duty to get the best possible deal for other stakeholders.

Monaco said Enbridge believes that its proposal will benefit other investors as well by providing them with a direct equity stake in the main company, but acknowledged that it's possible not all of the transactions will be accepted.