On February 10, 2021, Brookfield Infrastructure Partners L.P.
(NYSE: BIP; TSX: BIP.UN), together with its institutional partners
(collectively, “
Brookfield Infrastructure”,
“
we” or “
our”) announced its
intention to pursue a privatization transaction in respect of Inter
Pipeline Ltd. (TSX: IPL) (“
IPL” or the
“
Company”), pursuant to which it would acquire all
of the outstanding common shares of the Company not already owned
by Brookfield Infrastructure at a price per IPL common share equal
to C$16.50 (the “
Offer”). On February 22, 2021,
the Offer was formally launched and the Offer to Purchase and Bid
Circular was mailed to IPL shareholders, filed with the Canadian
securities regulators and posted on the Brookfield Infrastructure
site for the Offer (www.ipl-offer.com).
Given the significant passage of time
since announcement of the Offer, and shareholder inquiries we have
received, we find it appropriate to provide an update to the market
and fellow shareholders at this time. Brookfield Infrastructure
continues to believe the Offer is in the best interests of IPL
shareholders.
Correspondence between Brookfield
Infrastructure and IPL
After receiving no contact from IPL or the
Special Committee of IPL’s board of directors (“Special
Committee”) since launching our Offer, Brookfield
Infrastructure sent a letter to the Special Committee on April 13,
2021 with the following key messages:
- A number of IPL’s
largest shareholders have been in dialogue with us following the
Offer, including many event-driven investors.
- Shareholders have
expressed surprise that the Special Committee has chosen not to
engage with Brookfield Infrastructure, as the publicly-announced
mandate of the Special Committee should be to actively engage with
all prospective credible parties.
- A number of
significant shareholders have stated to us that the status quo or
any just say no strategy undertaken by the Company would be
unacceptable.
- We need meaningful
engagement by the Special Committee on realistic terms and
reasonable access to a comprehensive data room so that we have
sufficient information to determine whether to increase our
Offer.
- Further delays by
the Special Committee in providing Brookfield Infrastructure access
to due diligence would bring into question the motivations and
credibility of the Strategic Review process.
Despite our outreach efforts, IPL has
demonstrated a lack of urgency and has failed to credibly engage in
a manner that would allow Brookfield Infrastructure to participate
in the Strategic Review process.
- On April 20, 2021,
the Special Committee provided us with a short response indicating
an openness to Brookfield Infrastructure participating in the
Strategic Review process.
- Subsequent dialogue
initiated by us with IPL’s financial advisors revealed that the
Special Committee seeks to impose unreasonable conditions on
Brookfield Infrastructure in exchange for providing access to due
diligence information, including seeking restrictions on Brookfield
Infrastructure’s ability to increase the Offer price.
- We are not willing
to agree to restrictions designed to frustrate and limit our
ability to offer shareholders a higher price in exchange for
reasonable access to due diligence. These types of restrictions are
not commercial, are suggestive of management and board
entrenchment, and are not in the best interest of IPL or its
shareholders. Brookfield remains open to engaging on commercial
terms.
Brookfield Infrastructure’s Observations
on IPL’s April 22, 2021 HPC Update
After reviewing the Company’s selective update
on the Heartland Petrochemical Complex (“HPC”), we
have significant unanswered concerns regarding the appropriateness
of the underlying assumptions used by the Company to forecast
‘long-term’ run-rate EBITDA, and a continued general lack of
transparency with shareholders, particularly in the following
areas:
- HPC EBITDA Guidance: Recent guidance for 2023
incorporates Alberta Petrochemicals Incentive Program (“APIP”)
grants paid out over three years.
- Excluding these grants, 2023 EBITDA
guidance is now C$264 – C$314 million, leaving a C$186 million gap
to bridge to the Company’s ‘long-term’ guidance of C$450 – C$500
million.
- Lack of transparency on how IPL
expects to bridge this significant gap has led research analysts to
speculate the gap will be made up through a combination of improved
commodity prices, better contracts in the future and further
capital investments to expand capacity.
- We are concerned that these
optimistic underlying assumptions may not materialize, resulting in
further financial strain on IPL with an inability to significantly
reduce leverage, improve credit ratings, and reinstate historical
dividend levels on a reasonable timeline.
- IPL has chosen not to disclose when
it expects the HPC ‘Long-Term’ target to be achieved (e.g., 5-10
years, >20 years, etc.)
- HPC
Facility Production: No disclosure was provided on
utilization, ramp-up timeline, or production rates for the
near-term forecast guidance. An assessment of the reasonable,
run-rate utilization relative to IPL’s disclosed capacity is
important due to its effect on the viability and value of HPC.
- HPC
Contract Counterparties: We question IPL’s inclusion of
short-term, government grants in the calculation of counter-party
credit quality/exposure and require access to information to assess
the true customer credit quality of HPC on a long-term basis.
- Furthermore, we
remain concerned that IPL may use its newly-formed and wholly-owned
“Marketing Segment” when reporting “contracted capacity” given that
contracting with one of its subsidiaries will not change the risk
of the Company on a consolidated basis.
- HPC
Contracting Terms: We note that IPL no longer refers to
HPC contracts as being “cost-of-service” (as per IPL’s March 2020
Investor Presentation) – terminology which under a standard
industry interpretation implies a full recovery of operating and
capital costs.
- We assume IPL is
agreeing to offtake contracts where certain previously
unanticipated operating cost risks are now borne by the
Company.
- Contractual detail
beyond headline price is critical to properly assess risk
allocation, creditworthiness, long-term financing capacity and
consequently the value of the Company.
- HPC Capital
Cost Overruns:
- No substantive
update was or has been provided on HPC’s capital cost estimate
since May 2020, and no guidance was or has been provided on the
third-party owned Central Utility Block since September 2018.
- Given the highly
complex nature of this project combined with IPL having no
experience building large petrochemical facilities, IPL’s lack of
clarity on the aggregate construction cost is
concerning.
- Further material
cost overruns could have a material adverse effect on the economic
merits of this project and the Company.
|
2017 |
2020 |
April 22, 2021 |
HPC Build Cost |
“Total project cost of ~$3.5 bn”HPC
Presentation (Dec 18, 2017) |
“Updated Heartland Petrochemical Complex cost estimate to
$4 bn”Q1 2020 Results (May 7, 2020) |
“Total HPC cost of ~$4 bn”Investor
Presentation (Apr 2021) |
HPC EBITDA Guidance |
C$450 – C$500mm |
C$450-C$500mm |
2023: C$264 – C$314mmLong-Term: C$450 – C$500mm |
Implied HPC Build Multiple (Midpoint) |
~7.4x |
8.4x |
2023: ~13.8xLong-Term: ~8.4x |
Concluding Remarks
Despite limited time remaining before the
expiration of the Offer, and the Company’s representation that it
will ‘continue to welcome constructive dialogue with Brookfield’ we
await credible engagement on commercially reasonable terms that do
not impede our ability to increase the Offer price. Further
time-delay tactics and a general lack of transparency on both HPC
and the Strategic Review process serves no benefit to IPL
shareholders. We again strongly urge the Special Committee to
collaboratively engage with Brookfield Infrastructure and provide
access to the data room in the first instance.
The April 22, 2021 HPC update raised more
questions than answers and reinforced our need to conduct customary
due diligence once we have been provided the necessary
documentation by the Company, failing which Brookfield
Infrastructure will be unable to increase the Offer price. We do
not see a genuine rationale to continue delaying a public HPC
construction cost update.
IPL’s currently elevated share price reflects a
public market expectation of a privatization transaction within the
indicative range we previously communicated to the Company (and
noted in our Offer documentation), which was subject to due
diligence. The market clearly anticipates a transaction within that
range, which can only happen if IPL and the Special Committee
provide us with timely data room access to substantiate such a
valuation.
Brookfield Infrastructure reiterates its
sincere hope that the directors of IPL will fulfill their fiduciary
duty and listen to IPL’s institutional shareholders – many of whom
we understand have reached out to the Company and its directors
directly since our Offer was launched to voice their frustrations –
and provide access to the information needed on balanced terms so
that we can conduct customary due diligence.
Shareholder Questions
IPL shareholders who have questions or require
assistance in depositing IPL shares to the Offer should contact the
Information Agent and Depositary, Laurel Hill Advisory Group, by
telephone at 1-877-452-7184 (North American Toll-Free Number) or
416-304-0211 (outside North America) or by email at
assistance@laurelhill.com.
Brookfield Infrastructure is a
leading global infrastructure company that owns and operates
high-quality, long-life assets in the utilities, transport,
midstream and data sectors across North and South America, Asia
Pacific and Europe. We are focused on assets that have contracted
and regulated revenues that generate predictable and stable cash
flows. Investors can access its portfolio either through Brookfield
Infrastructure Partners L.P. (NYSE: BIP; TSX: BIP.UN), a
Bermuda-based limited partnership, or Brookfield Infrastructure
Corporation (NYSE, TSX: BIPC), a Canadian corporation. Further
information is available at www.brookfield.com/infrastructure.
Brookfield Infrastructure Partners is the flagship listed
infrastructure company of Brookfield Asset Management, a global
alternative asset manager with approximately US$600 billion of
assets under management. For more information, go to
www.brookfield.com.
For more information, please contact:
Media:Claire HollandSenior Vice President,
CommunicationsTel: (416) 369-8236 Email:
claire.holland@brookfield.com |
Investors:Kate WhiteManager, Investor Relations
Tel: (416) 956-5183Email: kate.white@brookfield.com |
|
|
No Offer or Solicitation
This news release is for informational purposes
only and does not constitute an offer to buy or sell, or a
solicitation of an offer to sell or buy, any securities. The offer
to acquire IPL securities and to issue securities of Brookfield
Infrastructure Corporation is made solely by, and subject to the
terms and conditions set out in the formal offer to purchase and
bid circular and accompanying letter of transmittal and notice of
guaranteed delivery.Cautionary Statement Regarding
Forward-looking Statements
This news release may contain forward-looking
information within the meaning of Canadian provincial securities
laws and “forward-looking statements” within the meaning of Section
27A of the U.S. Securities Act of 1933, as amended, Section 21E of
the U.S. Securities Exchange Act of 1934, as amended, “safe harbor”
provisions of the United States Private Securities Litigation
Reform Act of 1995 and in any applicable Canadian securities
regulations. The words “believe”, “expect”, “will” derivatives
thereof and other expressions which are predictions of or indicate
future events, trends or prospects and which do not relate to
historical matters, identify the above mentioned and other
forward-looking statements. Forward-looking statements in this news
release include statements regarding the terms and conditions of
the Offer, including the implied value of the consideration under
the Offer and the acceptance period of the Offer; potential further
engagement between Brookfield Infrastructure and the Company,
including possibly varying the terms or conditions of the Offer;
information relating to HPC, including potential cost overruns and
the impact on the project and the Company, EBITDA guidance and
possible reconciliation thereof to ‘long-term’ guidance,
contracting terms and possible operational risk, production
guidance and contracting counterparties and IPL’s approach to
segment reporting; and public market expectations around
valuation.
Although Brookfield Infrastructure believes that
these forward-looking statements and information are based upon
reasonable assumptions and expectations, the reader should not
place undue reliance on them, or any other forward-looking
statements or information in this news release. The actual outcome
of future events could differ from the forward-looking statements
and information herein, which are subject to a number of known and
unknown risks and uncertainties. Factors that could cause actual
events to differ materially from those contemplated or implied by
the statements in this news release include the ability to obtain
regulatory approvals (including approval of the TSX and the NYSE)
and meet other closing conditions to any possible transaction, the
ability to realize financial, operational and other benefits from
the proposed transaction, general economic conditions in the
jurisdictions in which we operate and elsewhere which may impact
the markets for our products and services, the impact of market
conditions on our businesses, the fact that success of Brookfield
Infrastructure is dependent on market demand for an infrastructure
company, which is unknown, the availability of equity and debt
financing for Brookfield Infrastructure, the ability to effectively
complete transactions in the competitive infrastructure space and
to integrate acquisitions into existing operations, changes in
technology which have the potential to disrupt the business and
industries in which we invest, the market conditions of key
commodities, the price, supply or demand for which can have a
significant impact upon the financial and operating performance of
our business and other risks and factors described in other
documents filed by Brookfield Infrastructure with the securities
regulators in Canada and the United States.
Except as required by law, Brookfield
Infrastructure undertakes no obligation to publicly update or
revise any forward-looking statements or information, whether as a
result of new information, future events or
otherwise.NOTICE TO SHAREHOLDERS IN THE UNITED
STATES
In connection with the Offer, on February 22,
2021, Brookfield Infrastructure Partners L.P. (“BIP”) and BIPC
filed with the U.S. Securities and Exchange Commission (the “SEC”)
a registration statement on Form F-4, as amended by a registration
statement that was filed on April 5, 2021 (the “Registration
Statement”), which will contain a prospectus and various documents
relating to the Offer. SHAREHOLDERS AND OTHER INTERESTED PARTIES
ARE URGED TO READ SUCH REGISTRATION STATEMENT AND ANY AND ALL OTHER
RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION
WITH THE OFFER AS THOSE DOCUMENTS BECOME AVAILABLE, AS WELL AS ANY
AMENDMENTS OR SUPPLEMENTS TO ANY SUCH DOCUMENTS, BECAUSE EACH
CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE OFFEROR,
IPL AND THE OFFER. Materials filed with the SEC will be available
electronically without charge at the SEC’s website at www.sec.gov
and the materials will be posted on BIP’s website at
www.brookfield.com/infrastructure. BIPC is a foreign private issuer
and BIP is permitted to prepare the Offer and Circular and related
documents in accordance with Canadian disclosure requirements,
which are different from those of the United States. The financial
statements included in the Offer and Circular have been prepared in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board (“IFRS”),
and thus may not be comparable to financial statements of U.S.
companies.
Shareholders in the United States should be
aware that the disposition of their Shares and the acquisition of
BIPC Shares by them as described in the Offer and Circular may have
tax consequences both in the United States and in Canada.
Shareholders should be aware that owning BIPC Shares may subject
them to tax consequences both in the United States and in Canada.
Such consequences for Shareholders who are resident in, or citizens
of, the United States may not be described fully in the Offer and
Circular and such Shareholders are encouraged to consult their tax
advisors.
The enforcement by Shareholders of civil
liabilities under U.S. federal securities laws may be affected
adversely by the fact that each of the Offeror, BIP, BIPC and IPL
is formed under the Laws of a non-U.S. jurisdiction, that some or
all of their respective officers and directors may reside outside
of the United States, that some or all of the experts named herein
may reside outside of the United States and that all or a
substantial portion of the assets of the Offeror, BIP, BIPC, IPL
and such persons may be located outside the United States.
Shareholders in the United States may not be able to sue the
Offeror, BIP, BIPC or IPL or their respective officers or directors
in a non-U.S. court for violation of United States federal
securities laws. It may be difficult to compel such parties to
subject themselves to the jurisdiction of a court in the United
States or to enforce a judgment obtained from a court of the United
States.
THE SHARE CONSIDERATION HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC OR ANY U.S. STATE SECURITIES COMMISSION NOR
HAS THE SEC OR ANY U.S. STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF ANY OFFERING DOCUMENTS INCLUDING THE OFFER
AND CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
In accordance with applicable law, rules and
regulations of the United States, Canada or its provinces or
territories, including Rule 14e-5 under the United States
Securities Exchange Act of 1934, as amended (the “U.S. Exchange
Act”), the Offeror or its affiliates and any advisor, broker or
other person acting as the agent for, or on behalf of, or in
concert with the Offeror or its affiliates, directly or indirectly,
may bid for, make purchases of or make arrangements to purchase
Common Shares or certain related securities outside the Offer,
including purchases in the open market at prevailing prices or in
private transactions at negotiated prices. Such bids, purchases or
arrangements to purchase may be made during the period of the Offer
and through the expiration of the Offer. Any such purchases will be
made in compliance with applicable laws, rules and regulations. To
the extent information about such purchases or arrangements to
purchase is made public in Canada, such information will be
disclosed by means of a press release or other means reasonably
calculated to inform Shareholders in the United States of such
information.
The Offer is being made for the securities of a
Canadian company that does not have securities registered under
Section 12 of the U.S. Exchange Act. The Offer is being conducted
in accordance with Section 14(e) of the U.S. Exchange Act and
Regulation 14E promulgated thereunder.
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