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Brookfield to Buy Midstream Business of Enbridge for $3.3B

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Brookfield Infrastructure Partners L.P. (BIP - Free Report) along with its institutional partners recently announced that the partnership has signed a definitive agreement for 100% acquisition stake in the Western Canadian natural gas gathering and processing business (also known as Canadian Midstream Business) of Enbridge, Inc. (ENB - Free Report) for $3.3 billion (approximately C$4.31 billion).

The completion of the transaction process is subjected to regulatory approval along with a number of customary conditions. The buyout will be closed in two phases, firstly in 2018 with the facilities subject to a provincial regulation and secondly, with a federal regulation pending, which is expected to be achieved in mid-2019.  

Details of the Acquisition

The firm has made an equity commitment of $500 million toward the transaction deal, representing nearly 30% interest in the Canadian Midstream business. The firm’s share of funding will come from its available liquidity, coupled with proceeds from the sale of its interest in Transelec, which was closed in March, 2018.

By investing in the midstream business transaction, the firm is exploring a fresh opportunity as well as expanding its existing footprint in natural gas gathering and processing businesses. The transaction would fetch in 19 natural gas processing facilities with a total operating processing capacity of 3.3 billion cubic feet per day (Bcf/d) along with 3,550 kilometers of gathering pipelines.

This Canadian Midstream business’s natural gas gathering and processing facilities are well connected to U.S. Pacific Northwest, U.S. Midwest and Western Canada, which are considered some of the major markets to create demand for the firm, netting in new customers. Also, this business is strategically positioned for continued enrichment and development of the of the prolific Montney Basin.

Acquisition & Merger in Utility Space

Utility sector operators don’t shy away from merger and acquisition (M&A) activities to supplement organic growth. In addition to lending their operations a greater scale and scope, such favorable measures also lead to cost synergies and better utilization of resources. The larger the companies, the more access they have to capital resources, essential for vital infrastructure upgrades.

We believe that in a mature energy market like the United States, M&As represent a surefire recipe of success to enhance the market share.

Beginning this year, SCANA Corporation (SCG - Free Report) entered into a merger agreement with Dominion Energy (D - Free Report) . Per the accord, each stock holder of SCANA will likely get 0.669 shares of Dominion. Considering Dominion’s assumption of $6.7 billion debt for SCANA, the transaction is worth roughly $14.6 billion.

Price Movement

Over the past month, units of Brookfield Infrastructure have gained 2.4%, underperforming its industry’s gain of 6.2%.

Zacks Rank

Brookfield Infrastructure currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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