The regulator’s ruling adds a new twist to the fight over who will control Inter Pipeline, a midstream energy company that owns pipelines in western Canada’s oil region, liquid storage terminals in Europe and a large petrochemical complex in Alberta that’s under construction. The Calgary-based firm has backed a $6.9 billion all-share deal with Pembina Pipeline Corp.
In Monday’s decision, Alberta’s securities regulator also said Brookfield must disclose new details about its use of derivatives called total return swaps. Brookfield used the swaps to acquire a nearly 20% economic interest in Inter Pipeline, without having to disclose its stake in the company before it launched a hostile bid in February.
The ruling throws into question the practice of using derivatives to build an economic position in companies without needing to disclose. Prior to making its first offer, Brookfield acquired about 9.8% of Inter Pipeline’s shares — just below the 10% level that would have required disclosure under Canadian rules. The use of swaps allowed Brookfield to raise the size of its economic stake to almost 20%. In Monday’s oral ruling, the Alberta regulator called the tactic “abusive.”
Inter Pipeline’s board rejected Brookfield’s advances before securing a friendly offer from Pembina for C$19.45 a share, announced June 1. Brookfield raised its offer within days and on June 18 revised it to give Inter Pipeline shareholders the option of C$19.50 in cash or about C$20 in stock.
Brookfield is seeking to win over shareholders before Pembina’s offer goes to a vote on July 29.
Inter Pipeline Chair Margaret McKenzie said in a statement: “With the ASC’s favorable decision, our shareholders can proceed to vote for the Pembina arrangement without the risk that Brookfield will be permitted to further increase its aggregate share and swap position to frustrate the ability of shareholders to choose.”
Brookfield’s own challenge to some of Inter Pipeline’s defensive tactics, including a shareholder rights plan, was rejected by the securities commission.
The battle for the Canadian midstream company follows years of failed attempts to build major projects like TC Energy Corp.’s Keystone XL and Enbridge Inc.’s Energy East, potentially making existing pipelines more valuable.