Pembina Pipeline (TSX: PPL) has agreed to acquire Veresen (TSX: VSN) in a deal that will create an energy infrastructure company with a pro-forma enterprise value of roughly C$33 billion (about $24.15 billion). The deal will help Pembina achieve the scale required to expand into the US and provide some much-needed balance sheet stability, creating a combined business that will boast 5.8 billion cubic feet per day of gas processing infrastructure in western Canada by next year.
The deal bucks a sustained downward trend for energy M&A deal flow in the face of crude oil prices that continue to hover around $50 per barrel. After annual deal count declined in both 2015 and 2016, the first quarter of the new year brought another drop, all the way to 106 new energy deals involving companies based in North America or Europe, per PitchBook’s 1Q 2017 M&A Report. But those transactions accounted for $72.2 billion in total value—a QoQ increase.
Valued at C$9.7 billion (~$7.1 billion) including the assumption of debt, the transaction between Pembina and Veresen represents a 22.5% premium to Veresen’s closing share price on Friday. Under the terms of the deal, Veresen’s shareholders can choose to receive either C$18.65 per share in cash or 0.43 of a Pembina share for each of their own shares. Pembina stock closed down 4% on Monday, while Veresen surged 19% to close at C$18.12, establishing a market cap of C$5.75 billion.