Inter Pipeline's Heartland Petrochemical Complex is shown under construction in Fort Saskatchewan, Alta., on Jan. 10, 2019.JASON FRANSON/The Canadian Press
Brookfield Infrastructure LP is extending the deadline for its Inter Pipeline Ltd. takeover bid yet again after failing to secure enough shareholder support by Friday’s deadline.
Brookfield has been trying to negotiate a takeover of Inter Pipeline for almost a year, but was initially rebuffed by the target’s board, and is now trying to win over public shareholders. Brookfield has increased its public offer price twice and extended its deadline multiple times, but has yet to secure enough shareholder support.
Brookfield last increased its bid in mid-July to $20 a share in cash to Inter Pipeline shareholders, up from $19.50 a share. Its original hostile bid in February was worth $16.50, which was comprised of a mix of cash and shares.
Brookfield’s latest revision also allowed Inter Pipeline investors to take some shares at an elevated price instead of cash, offering one-quarter of a Brookfield Infrastructure Corp. share for each Inter Pipeline share. Inter Pipeline’s board ultimately decided to back this offer after rival bidder Pembina Pipeline Corp. bowed out of a bidding war.
Because of the recent offer revision, Brookfield’s deadline was extended to Aug. 6. Late Friday, Brookfield said it would extend its bid again after falling short of the 55-per-cent support threshold. In a statement, Brookfield said it has received support from 52 per cent of shareholders, just shy of the minimum hurdle.
“Given the short time frame from receiving the recommendation from Inter Pipeline’s board of directors to tender to the offer, we are pleased with the significant initial tender results. With this extension, we are confident we will be in a position to meet the modified statutory minimum condition and take-up and pay for all tendered shares,” Brookfield said in its statement.
Brookfield initially needed only a simple majority of shareholder support, but lost a court challenge at the Alberta Securities Commission, or ASC, in early July that increased the minimum tender threshold.
Inter Pipeline’s board, which initially backed Pembina’s rival bid, had argued that Brookfield used “coercive tactics” to try to win the takeover battle and zeroed in on Brookfield’s use of securities known as total return swaps. These securities give Brookfield a 9.9-per-cent economic interest in Inter Pipeline – but do not provide Brookfield with voting control of that block of shares.
The swaps are in addition to Brookfield’s outright ownership of a 9.75-per-cent stake in Inter Pipeline’s common shares.
Brookfield had touted its 9.9-per-cent economic interest through the swaps, and Inter Pipeline worried Brookfield scared off rival bidders and convinced some shareholders that its hostile bid was tough to stop because the perceived voting block is so large.
The ASC agreed. “We find that Brookfield’s use and disclosure relating to the total return swaps was clearly abusive to the Inter Pipeline shareholders and the capital markets and, as such, contrary to the public interest,” the regulator said in an oral ruling, adding that the limited disclosure “adversely affected Inter Pipeline’s shareholders and the Inter Pipeline auction process.”
Because the use of swaps in a takeover battle is a relatively novel issue, the ASC said its powers were constrained to a few options, one of which was to shoot down Brookfield’s bid altogether. Instead, the regulator increased the minimum tender condition to 55 per cent.
After failing to meet that threshold, Brookfield Infrastructure’s bid has been extended by two weeks to Aug. 20. Its corporate shares have dropped 17 per cent since the last revision to its Inter Pipeline offer.
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