The price includes $1.25 billion in cash and $240 million in debt. Teachers'; Borealis, a unit of the Omers pension plan; and Kinder Morgan each own one-third of the system.
Tudor, Pickering, Holt & Co. Securities Inc. wrote in a note Tuesday that Spectra's purchase is an "expensive entrance" into the crude market at 11.5 times Ebitda. "Demand for crude assets remains robust as gas- and NGL [natural gas liquids]-levered midstream companies pay up to diversify," it wrote.
On a conference call with analysts and investors, Spectra CEO Greg Ebel said investing in crude oil assets was a logical extension of its natural gas business. Given the regulatory pushback for new pipelines, the fact that the assets already are in the ground is a huge advantage, he said.
Ebel said he expects the company to buy more assets and drop down some to its master limited partnership, Spectra Energy Partners LP.
The 1,717-mile Express System consists of two crude oil pipelines, the Express Pipeline and Platte Pipeline, and is one of only three carriers of crude oil from Western Canada to refineries and markets in the U.S. Rockies and Midwest.
The Express has been in operation since 1997 and transports crude oil from Hardisty, Alberta, to Casper, Wyo., and has a capacity of 280,000 barrels a day. The Platte has been operating since 1952, transporting crude oil from Casper to Wood River, Ill. Its capacity ranges from 164,000 barrels a day in Wyoming to 145,000 barrels a day to Wood River.
Spectra expects to close the sale in the first half of next year if it clears regulators, although it doesn't require approval from the Federal Energy Regulatory Commission.
Spectra Energy predicts the assets will add Ebitda of $130 million and earnings per share of 3 cents to 5 cents per share next year.
In a separate statement, Teachers' said it bought its interest in the pipelines in 2003 through its infrastructure group.
Stephen Dowd, Teachers' senior vice president of infrastructure and timberland, said in a statement that the Express Pipeline was one of the Fund's earliest infrastructure investments and that it would continue to look for future opportunities in that sector.
Houston-based Kinder Morgan said separately it expects the deal to close in the second quarter and will redeploy the proceeds into various growth projects. It receives $15 million in annual cash flow from the assets, primarily debenture interest.
Borealis CEO Michael Rolland said in a statement that it plans to redeploy the capital into large-scale, global infrastructure assets.
Spectra didn't use an outside financial adviser but enlisted legal counsel from Marc Gerber and Ashton Valente at Skadden, Arps, Slate, Meagher & Flom LLP and Derek Flaman, Rich Balfour, Robin Sirett, Paul Blyschak, Leo Rudolph, Oliver Borgers, Michele Siu, T.J. Kang and Lorraine Allard at McCarthy Tetrault LLP. Kinder Morgan used a Blake Cassels & Graydon LLP team including Mungo Hardwicke-Brown, Katie Jamieson, Jason Gudofsky, David Rosner, Brian Thiessen, Claire Marchant, Sean Maxwell, John Eamon, Ky Kvisle, Jana Prete, Annie Stewart and Corinne Grigoriu. Morgan Stanley's Max Gover and CIBC World Markets advised Borealis while Sullivan & Cromwell LLP represented Borealis and Teachers, including Joseph Frumkin, Shannon Haley, Marc Morgenthau, Adam Rachlis, Mimi Butler, Matthew Goodman, Tia Barancik, David Spitzer, Andy Solomon, Ronald Creamer, Alexander Apostolopoulos, Yvonne Quinn, Eric Queen, Henrik Patel, Lawrence Pasini, Jeanette Braun, Matthew Brennan, Spencer Simon, Stephen Miller and Marina Bezrukova. Torys LLP also provided Borealis with legal assistance.
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