By Peter Kennedy
Kinder Morgan Canada [KML-TSX] said Wednesday August 21 that it has struck a deal that will see the pipeline company being acquired by Pembina Pipeline Corp. [PPL-TSX; PBA-NYSE] in a $4.35 billion deal.
Kinder Morgan Canada’s restricted voting shares jumped 34.2% or $3.76 on volume of over 2.2 million on Wednesday. The shares have traded in a 52-week range of $10.55 and $52.50.
Kinder Morgan Canada is the company that famously sold its interest in the Trans Mountain Pipeline system and expansion program last year to the Canadian government for $4.5 billion, a move that put the project in the hands of Canadian taxpayers.
KLM shareholders voted unanimously to accept the sale on August 30, 2018, the same day that the Federal Court of Appeal quashed the approval of the $7.4 billion Trans Mountain Pipeline expansion on the basis that Canada’s efforts to meaningfully consult with indigenous people fell short.
When the ruling was announced, the court also criticized the lack of attention given to how increased tanker traffic off the cost of British Columbia would affect the resident killer whale population.
However, in February, 2019, the National Energy Board recommended that Ottawa reapprove the controversial project, which the Trudeau government agreed to do in June, 2019.
Trans Mountain said this week it has issued “notice to proceed” directives to some of its prime construction contractors, triggering mobilization of the initial workforce needed to restart construction on the pipeline project. It said work will resume at Kinder Morgan’s Burnaby, B.C., terminal as well as in communities in Alberta. Trans Mountain expects to have close to 4,200 workers on the job in various communities by the end of 2019.
The original Trans Mountain Pipeline was built in 1953 and continues to operate today. The proposed expansion is essentially a twinning of the existing 1,150-kilometre pipeline between Edmonton, Alberta and Burnaby, British Columbia.
Expected to cost approximately $7.4 billion, it will create a pipeline system with a nominal capacity rising from 300,000 barrels per day to 890,000 barrels per day.
If approvals are received as anticipated, the Trans Mountain Expansion Project is expected to be in service by mid-2022.
Under the deal announced on Wednesday, Pembina has agreed to acquire all the outstanding common equity of Kinder Morgan Canada, including the 70% majority voting interest held by Kinder Morgan Inc. [KMI-NYSE].
Upon closing, Kinder Morgan Canada shareholders will receive 0.3068 shares of Pembina for each Kinder Morgan share.
Based on the closing price of Pembina shares on August 20, 2019, the total consideration to be received by Kinder Morgan Canada common shareholders is valued at $15.12 per share, an amount that represents a 38% premium to the closing price of Kinder Morgan Canada shares on August 20, 2019.
“KML views Pembina as a leading infrastructure services provider to the North American energy industry,” said KML Board Chairman and CEO Steve Kean. “We believe KML’s assets will be a great fit with Pembina’s business and this transaction is highly beneficial to KML’s shareholders,” he said.
Kean went on to say that the transaction gives KML’s public shareholders the opportunity to participate in a larger and growing platform of North American midstream energy assets.
In addition, Pembina has agreed to purchase the U.S. portion of the Cochin Pipeline from Kinder Morgan Inc. for US$1.54 billion. The closing of the two transactions are cross-conditioned upon each other.
The Cochin mainline system represents a fully-contracted cross-border pipeline system that is highly strategic as it connects Pembina’s Channahon, Bakken and Edmonton-area assets and is connected to markets in Mont Belvieu, Conway, and Edmonton.
“Further, there is future potential to connect the eastern leg of the Cochin Pipeline System to Pembina’s assets and markets in Sarnia, Ontario,” Pembina said in a press release.
The deal also includes Vancouver Wharves, a 51-hectare bulk marine terminal facility located at the Port of Vancouver that transfers more than 4 million tonnes of bulk cargo annually.
On Wednesday, Pembina shares eased 0.41% or 20 cents to $49.07 on volume of 1.39 million. The shares trade in a 52-week range of $39.15 and $50.65.