Pembina Acquires U.S. Cochin Pipeline and Canadian Operations From Kinder Morgan

Updated 1 year 5 months ago

Kinder Morgan agreed on August 21st to sell the U.S. portion of the Cochin pipeline to Pembina for USD 1.546 billion. Also, Kinder Morgan Canada Ltd. (KML) reached an agreement with Pembina under which Pembina has agreed to acquire all the outstanding common equity of KML including KMI’s 70% stake, subject to the terms of the arrangement agreement between KML and Pembina. The closing of these transactions are cross-conditioned upon each other. The parties originally expected to close the transactions late 4Q 2019 or 1Q 2020 including KML shareholder and regulatory approvals. KMI expects to use the proceeds to reduce debt and use the remaining proceeds to invest in projects and/or to repurchase KMI shares. Initially, proceeds will be used to reduce debt.

KMI received 0.3068 shares of Pembina for each KMI held share in KML. This exchange ratio results in KMI receiving approximately 25 million shares of Pembina stock for KMI’s 70% stake in KML, which equates to slightly less than 5% of Pembina’s common equity. While KMI expects to ultimately convert these shares into cash, the company plans to do so in an opportunistic and non-disruptive manner. Conversion of these shares to cash at yesterday’s closing price for Pembina of CAD 49.27 would yield pre-tax proceeds of approximately USD 935 million. Based on that closing price, the total consideration to be received by KML common shareholders is valued at CAD 15.12 per KML share, which represents a 38% premium to yesterday’s KML closing price.

The Canadian Competition Bureau sent a letter indicating they do not intention to challenge the acquisition on November 20th, and Kinder Morgan announced on November 26th that ISS and Glass Lewis have both endorsed the transaction as a positive for shareholders. Kinder Morgan Canada shareholders approved the acquisition on December 10th, and the deal closed on December 16th.