Pembina Pipeline Corporation to Acquire Provident Energy Ltd., to Create Leading North American Energy Infrastructure Company
Date : 01/16/2012 @ 2:01AM
Source : PR Newswire
Stock : Provident Energy (PVX)
Quote : 11.27 -0.07 (-0.62%) @ 11:37AM
Pembina Pipeline Corporation to Acquire Provident Energy Ltd., to Create Leading North American Energy Infrastructure Company
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Provident Energy (NYSE:PVX)
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Pembina Pipeline Corporation (TSX: PPL, PPL.DB.C) ("Pembina") and Provident Energy Ltd. (TSX: PVE, PVE.DB.E, PVE.DB.F, NYSE: PVX) ("Provident") are pleased to announce they have entered into an agreement (the "Arrangement Agreement") for Pembina to acquire all of the issued and outstanding common shares of Provident (the "Provident Shares") by way of a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement") to create an integrated company that will be a leading player in the North American energy infrastructure sector. Upon the successful completion of this transaction Pembina intends to increase its monthly dividend rate from $0.13 per share per month (or $1.56 annualized) to $0.135 per share per month (or $1.62 annualized) representing a 3.8% increase and reflecting management's confidence in the significant operational and financial strength of the combined entity going forward.
Transaction Description
Under the terms of the Arrangement Agreement, Provident shareholders will receive 0.425 of a Pembina share for each Provident share held (the "Provident Exchange Ratio"). Based on the January 13, 2012 TSX closing share price of Pembina of $27.90, the Provident Exchange Ratio represents a premium of 24.7% to Provident's closing TSX share price on January 13, 2012 of $9.51. Based on the 20-day weighted average TSX share price of Pembina of $29.11, the Provident Exchange Ratio represents a premium of 26.2% to Provident's 20-day weighted average TSX share price of $9.80. The proposed transaction is expected to immediately increase Pembina's cash flow per share, increase its dividends per share and reduce its dividend payout ratio. After completion of the proposed transaction the combined assets and employees will operate under the Pembina name and will be led by a combination of Pembina's and Provident's executive team.
Under the Arrangement Agreement, Pembina will also assume all of the rights and obligations of Provident relating to: (i) the 5.75% convertible unsecured subordinated debentures of Provident maturing December 31, 2017, and (ii) the 5.75% convertible unsecured subordinated debentures of Provident maturing December 31, 2018 (collectively, the "Provident Debentures"). The conversion price of each class of Provident Debentures will be adjusted pursuant to the terms of the trust indenture governing the Provident Debentures based on the Provident Exchange Ratio. Following closing of the transaction, Pembina intends to make an offer for the Provident Debentures at 100 percent of their principal values plus accrued and unpaid interest. The repurchase offer will be made within 30 days of closing of the proposed transaction. Should a holder of the Provident Debentures elect not to accept the repurchase offer, the debentures will mature as originally set out in their respective indentures. Holders who convert their Provident Debentures following completion of the Arrangement will receive common shares of Pembina.
In addition, Provident will immediately suspend its premium dividend reinvestment plan and dividend reinvestment plan.
The Combined Entity
Based on the Provident Exchange Ratio and Pembina's share price quoted above, the combined company will have a market capitalization of $7.9 billion and total enterprise value of $10 billion, making it one of the largest publicly traded energy infrastructure companies in Canada.
"Provident's assets, employees, customers and growth projects are an outstanding fit for Pembina," said Bob Michaleski, President and Chief Executive Officer of Pembina. "The proposed transaction integrates our energy transportation and gas processing businesses with Provident's suite of services including natural gas liquids (NGL) extraction, fractionation, storage, transportation and logistics, and will significantly accelerate our growth capital plans for these business segments. Our expanded footprint will provide greater access to natural gas liquids markets across North America, and will allow us to offer customers a significantly expanded spectrum of energy services."
"This is a logical transaction that leverages off Provident's strong growth as a pure play midstream business," said Doug Haughey, President and Chief Executive Officer of Provident. "It generates substantial value for Provident shareholders and brings together two organizations with complementary strategies and assets. The result will be one of the strongest energy infrastructure players in Canada. Provident's shareholders will participate in a larger entity that has the capability to pursue larger and more complex growth projects, has exposure to more elements of the energy infrastructure value chain, and offers greater liquidity and presence in the capital markets. Based on Pembina's current dividend rate and the Provident Exchange Ratio, Provident's shareholders will receive an increase in dividends per share relative to Provident's current dividend."
Benefits of the Combination
The proposed transaction is expected to provide Pembina shareholders with an increase in cash flow per share, increased dividends per share and reduce Pembina's payout ratio, while giving Provident shareholders a significant premium and a 27.5% increase in monthly cash dividends on a per share basis after taking into account the Provident Exchange Ratio (compared to the level of dividends currently received by Provident Shareholders).
The combined entity will create one of the largest publicly traded energy infrastructure companies in Canada, offering the following benefits for shareholders of both Pembina and Provident:
Scale and Scope: A substantially larger, and more diversified portfolio of businesses across the energy infrastructure value chain;
Complete Value Chain: A highly integrated suite of services being offered to customers through the combination of Pembina's liquids transportation, gas services, and midstream and marketing segments and Provident's capabilities in NGL extraction, fractionation, storage, transportation and logistics permitting both a diversification of business and strengthening the value proposition for its shareholders and customers;
Key Growth Areas: Extensive energy infrastructure businesses located in key growth regions including: Montney, Duvernay, Alberta Deep Basin, Pelican Lake heavy oil, Athabasca oil sands, Cardium, Swan Hills, Bakken, Marcellus and Utica;
Expanded Footprint: Greater access to NGL barrels as well as increased capability to store, process and market barrels across key North America hubs including Edmonton, Sarnia and Mont Belvieu. The pro forma company will have operations in key market areas for NGL and crude oil in close proximity to pipelines, rail and truck facilities, storage, fractionation, petrochemical and refining customers;
Strong Leadership Team: An experienced management team with a strong focus on being a responsible, reliable operator and a trusted member of the community;
Substantial Growth Opportunities: A larger entity capable of pursuing more complex growth projects at an accelerated pace including an aggregate capital program of approximately $700 million of announced spending in 2012 (Pembina: $550 million, Provident: $150 million). Major near-term projects include:
Saturn and Resthaven liquids extraction facilities;
Peace NGL pipeline expansion;
Redwater liquids storage development;
Redwater fractionator capacity expansion;
Strong Synergies: The combined entities will generate substantial synergies:
The ability to leverage technical, commercial and operational skills from both Pembina and Provident over the combined asset base, achieving cost savings and operating efficiencies;
Synergies that will be realized by more fully connecting, integrating and utilizing the current and future asset bases of both companies;
Corporate cost synergies through the consolidation of head offices, the decrease of Provident debt service costs, and the elimination of costs associated with Provident's public company costs;
Capital efficiencies through the allocation of capital expenditures to the highest return projects.
Superior Financial Platform: The pro forma company will generate a diversified stable cash flow stream and enjoy a very strong balance sheet with pro forma 2011 senior debt to EBITDA of approximately 2.4x.
Due to the continued success of producers drilling for liquids rich natural gas and the increase in field liquids extraction, the amount of NGL being produced in the Western Canadian Sedimentary Basin has increased significantly. To meet the growing need of producers in the region, Pembina expects that on closing of the proposed transaction, it will begin development of a new 65,000 bpd fractionator at Provident's Redwater site, which is anticipated to be in-service by mid 2014 pending continued customer support and subject to required regulatory and environmental approvals.
Canadian and U.S. Tax Considerations for Provident Shareholders
The Arrangement Agreement has been structured to allow Provident shareholders to receive Pembina shares generally on a tax-deferred basis for Canadian income tax purposes. In addition, the Arrangement Agreement has been structured so that the Arrangement will qualify as a tax-free transaction for U.S. federal income tax purposes. If the Arrangement qualifies as a tax-free transaction, Provident shareholders who receive Pembina shares will not be required to recognize gain and will not be permitted to recognize loss. However, there can be no assurance that the U.S. Internal Revenue Service will not challenge the treatment of the Arrangement as a tax-free transaction.
About the Transaction
The Boards of Directors of Pembina and Provident have each unanimously (other than the directors who have recused themselves from the process of considering the proposed transaction) approved the Arrangement Agreement and have concluded that the proposed transaction is in the best interests of Pembina and Provident, respectively. The Boards of Directors of each Pembina and Provident are expected to provide written recommendations that their respective shareholders vote their shares in favor of the Arrangement (or, in the case of Pembina, the issuance of Pembina shares in connection with the Arrangement) in the joint information circular to be prepared and mailed by Pembina and Provident in connection with the proposed transaction. In addition, each of the Directors (other than those that have recused themselves from the process of considering the transaction) and Executive Officers of Pembina and Provident have agreed to vote their shares in favor of the proposed transaction.
The proposed transaction will be carried out by way of a court-approved plan of arrangement and will require the approval of at least 66 2/3% of holders of Provident Shares represented in person or by proxy at a special meeting of Provident shareholders (the "Provident Meeting") to be called to consider the Arrangement. It is expected that the proposed transaction will be exempt from the registration requirements of the U.S. Securities Act of 1933, as amended, pursuant to the court approval exemption afforded by section 3(a)(10) under that Act. The proposed transaction is also subject to obtaining the approval of a majority of the votes cast by the holders of Pembina Shares at a special meeting of Pembina shareholders (the "Pembina Meeting") to be called to consider the issuance of Pembina shares in connection with the proposed transaction. In addition to shareholder and court approvals, the proposed transaction is subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary in transactions of this nature, including compliance with the Competition Act (Canada) and the acceptance of the Toronto Stock Exchange (the "TSX").
Further information regarding the proposed transaction will be contained in a joint information circular that Pembina and Provident will prepare, file and mail in due course to their respective shareholders in connection with the Pembina Meeting and Provident Meeting. It is expected that the Provident Meeting and the Pembina Meeting will take place in late March, 2012, with closing expected to occur as soon as possible thereafter subject to regulatory approval. All shareholders are urged to read the information circular once it becomes available as it will contain additional important information concerning the proposed transaction and the Arrangement.
A copy of the Arrangement Agreement will be filed on Pembina and Provident's SEDAR profile and will be available for viewing at www.sedar.com.
Pembina expects to apply to list Pembina shares issuable under the proposed transaction on the Toronto Stock Exchange ("TSX") on closing and Pembina will apply to list its shares on the New York Stock Exchange ("NYSE"). It is anticipated that the Provident Shares will be delisted from the TSX and the NYSE following completion of the Arrangement.
Management and Staff
The combined entity will be led by Bob Michaleski, President and Chief Executive Officer of Pembina, and a combination of Pembina's and Provident's executive teams. Due to the complementary nature of the businesses, Pembina plans to make employment offers to substantially all of Provident's employees.
Board of Directors
Subject to a successful completion of the proposed transaction, each of Mr. Grant D. Billing and Mr. Jeffrey T. Smith, current members of the Provident Board of Directors, have advised that they will accept positions on the Pembina Board. Mr. Billing is currently Chairman and formerly CEO of Superior Plus Corp. Mr. Smith is an independent businessman and is currently a director of Pace Oil & Gas Ltd. Mr. Billing and Mr. Smith have extensive experience in operations, finance, mergers and acquisitions, governance, human resources and compensation, and environment, health and safety. Mr. Randy Findlay, currently a director of both Pembina and Provident, will continue as a director of Pembina.
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