Canadian corporation Pembina Pipeline Corporation has agreed to acquire Kinder Morgan Canada from Kinder Morgan Inc (KMI) for CAD$4.35bn. The deal includes the US portion of the Cochin pipeline system, which traverses from Saskatchewan in Western Canada through seven US states before finishing in Windsor, Ontario, Canada.
The deal values Kinder Morgan Canada itself at CAD$2.3bn, with the remaining $2.05bn set aside for the Cochin US pipeline.
Pembina explained that the deal allows it to own a cross-border pipeline that is “highly strategic”, as it connects its markets across Canada with the potential of further expansion in areas such as Vancouver.
Pembina also cited the fact that the pipeline is already strongly supported by long-term contracts and it will have a strong financial impact, with expected earnings before interest, tax, depreciation and amortisation (EBITDA) of CAD$350m this year.
The company’s share price fell slightly to CAD$48.96 a share; however, its share price has generally been on the rise this year, having started the year at CAD$41.23 a share. Pembina’s market capitalisation is currently CAD$25.02bn.
Pembina CEO Mick Dilger said: “This acquisition is highly strategic for Pembina, providing enhanced integration with our existing franchise, entrance into exciting new businesses and clear visibility to creating long-term value for our shareholders.”
KMI welcomed the deal, noting it was 13 times higher than its expected EBITDA for 2019. The company added that it would use the proceeds to reduce debt and maintain its net debt to adjusted EBITDA ratio of 4.5 times.
KMI’s share price increased to $20.46 a share on 21 August, a 1.3% rise on the day before, continuing its rising trend from $15.80 per share at the start of 2019. It has a market capitalisation of $26.26bn. Kinder Morgan Canada share prices jumped 34% from CAD$10.98 to CAD$14.73 a share.
KMI CEO Steve Kean said: “This is an attractive transaction for KMI and KML stockholders. It enables KMI to reduce leverage and gives us the flexibility to create additional value for shareholders through share buybacks, project investments, or both.”
The transaction is expected to take place either in the fourth quarter of 2019 or the first quarter of 2020.