Pembina Pipeline Corporation and Inter Pipeline Ltd. have entered into an arrangement agreement for Pembina to acquire all of the issued and outstanding shares of Inter Pipeline in a share-for-share transaction, which values Inter Pipeline common shares at approximately $8.3 billion, or $19.45 per share, based on the closing price of Pembina's common shares on May 31, 2021.

The Transaction will create one of the largest energy infrastructure companies in Canada, with a pro forma enterprise value of $53 billion and a diversified and integrated asset base that can support and grow an extensive value chain for natural gas, natural gas liquids and crude oil, from wellhead to end user. Furthermore, past and future investments by both companies will help access new demand markets for the Western Canadian Sedimentary Basin ("WCSB"), benefitting Pembina, its customers and the provinces of Alberta and British Columbia alike.

Key Highlights

• Combination of highly connected and complementary assets, resulting in greater vertical integration, expanded customer service offerings, and enhanced global market reach to maximize the value of products produced in the WCSB.
• Near-term synergies of $150 to $200 million annually, which are expected to immediately contribute to meaningful adjusted cash flow per share accretion upon closing of the Transaction.
• Once the Heartland Petrochemical Complex ("HPC") is in full service, the combined company is expected to generate $1.1 billion to $1.4 billion of adjusted cash flow from operating activities after dividends annually, greatly enhancing its ability to fund existing and future capital investment.
• Combination will accelerate and de-risk accretive investment opportunities across various value chains, allowing for deployment of capital into projects at attractive rates of return. In addition to the projects currently under construction, the combined company has visible and highly probable unsanctioned investment opportunities in excess of $6 billion.
• Strong financial platform, in adherence with Pembina's financial guardrails, with the addition of significant long-term contracted cash flow and long-lived underlying assets to Pembina's existing strong foundation.
• Pembina's monthly dividend to increase by $0.01 per share, or 4.8 percent, to $0.22 per share following closing of the Transaction. Following the successful commissioning and in-service of HPC, currently expected in 2022, incremental cash flow from the project is expected to support a further increase to the monthly dividend of an additional $0.01 per share, to $0.23 per share.
• Shared commitment to Environmental, Social and Governance ("ESG") priorities including investments that reduce the combined company's emissions intensity to contribute to a lower carbon economy. Incremental opportunities available to the combined company to be advanced in due course, prior to closing.
• Inter Pipeline shareholders will benefit immediately from an offer that provides a premium to the current trading price, an immediate 175 percent increase to their monthly dividend upon closing, and by sharing in the synergies and enhanced growth potential arising from the combined company.

Key operational metrics for the combined entity are as follows:

"The Transaction is highly strategic for both Pembina and Inter Pipeline, providing clear visibility to creating long-term sustainable value for our respective shareholders," said Randy Findlay, Pembina's Chair of the Board of Directors. "It represents a compelling opportunity to continue building on our respective low-risk, long-term, fee-for-service business model, expand our customer service offerings, and create significant value through the realization of synergies, vertical integration and high return growth opportunities. Pembina's strategy of maximizing the value of its products through global market access is strengthened with the addition of HPC, which will allow us and our customers to benefit from additional margin capture. A core part of our strategy is the commitment to ESG, including making investments to enhance the long-term sustainability of our business and reducing the carbon intensity of what we do."

Margaret McKenzie, Inter Pipeline's Chair of the Board of Directors, commented, "After a comprehensive review of strategic alternatives by the Special Committee of the Board of Directors of Inter Pipeline, it was evident that a combination with Pembina offered compelling value for Inter Pipeline shareholders in the short-term, as well as the opportunity to participate in the upside of HPC and the combined business longer-term." Ms. McKenzie went on to add, "The creation of a more highly integrated business across the energy infrastructure value chain results in a combined entity that is greater than the sum of its parts. The combined asset suite, financial strength, and operational foundation, makes us highly confident that the Transaction will translate into significant value for all stakeholders, both immediately and into the future."

Transaction Rationale

• Integrated Asset Base: The majority of the combined asset base is already physically connected or presents the opportunity to be connected with relative ease in the future, which will allow for operational integration, the potential to realize significant immediate synergies and enhanced customer service.
• Expanded Customer Service Offerings: Customers are expected to benefit from lower costs through economies of scale, the conversion of their products into higher value materials, such as converting propane to polypropylene, and by gaining access to higher value markets both locally and globally.
• Creates the Leading Integrated Condensate Delivery Solution in Western Canada: Pembina is the largest gatherer of condensate in the WCSB through the Peace Pipeline and Drayton Valley pipeline systems and one of two importers of condensate through Cochin Pipeline. Inter Pipeline is the leading deliverer of condensate to consuming regions through its multi-line condensate delivery system. By combining Pembina and Inter Pipeline's complementary network of receipt and delivery pipelines, the combined company will be able to offer a 'one-stop-shop' for integrated customers who wish to utilize the condensate they produce in one location of the WCSB and connect it for use in another location.
• De-risking and Enhancing Value of HPC: By combining HPC with Pembina's industry leading 60,000 bpd of propane supply infrastructure in Fort Saskatchewan, long-term supply risk for HPC is eliminated, while further improving the possibility of a second such facility.
• Meaningful Synergies Through Combination: On a run-rate basis, pre-tax synergies are expected to average $150 to $200 million annually. Approximately $100 to $150 million of annual synergies will come from lower general, administrative and operating costs, and are expected to be realized in the first year after closing. The remaining $50 million of annual synergies will come from commercial and product optimization, including optimization of the Redwater complex, and are expected to be realized in the second year after closing.
• Readily Actionable Growth Projects: Subject to the closing of the Transaction, the combined company will have visibility to approximately $450 million of new projects, which are readily actionable and uniquely available by combining the two companies. In aggregate, once completed these projects could generate approximately $100 million of incremental adjusted EBITDA. These opportunities include connecting the Cochrane straddle plant to Pembina's Brazeau pipeline system, enabling the propane-plus liquids stream to be transported and processed with Pembina infrastructure, and ultimately available to connect to HPC. In addition, the combined businesses provide a critical scale supply of butane to support the development of a butane splitter in Fort Saskatchewan. Longer-term, integration of an alkylation facility, capable of producing high-octane gasoline blendstock, is possible.
• Future Growth Opportunities: The combined asset base will allow for the acceleration and de-risking of accretive investment opportunities across various value chains, allowing for deployment of capital into projects at attractive rates of return. The combined company has visible and highly probable unsanctioned investment opportunities in excess of $6 billion, inclusive of the $450 million of projects above. These investments draw from both Pembina's and Inter Pipeline's portfolios and under the combined entity, both the probability of success and the capital efficiency of this portfolio is enhanced.
• Enhanced Scale and Capabilities: With an estimated pro forma enterprise value of approximately $53 billion and expected annual adjusted cash flow from operating activities after dividends of $1.1 billion to $1.4 billion over the first three years following closing of the Transaction, the combined entity will benefit from significantly enhanced cash flow generation and project development and funding capabilities.
• Strong Financial Platform: The Transaction adheres to Pembina's financial guardrails, noting that HPC will represent less than 10 percent of the combined company's adjusted EBITDA once HPC is in full service. The share-for-share exchange will maintain Pembina's strong balance sheet, with pro forma adjusted funds from operations-to-adjusted debt under rating agency methodology of approximately 17 to 19 percent over the next three years.
• Investing in a Sustainable Future: Pembina and Inter Pipeline each have strong ESG track records and share a commitment to building sustainable businesses that deliver benefits to all stakeholders. The combined entity will have greater capacity and a broader portfolio of opportunities to pursue ESG-related investments, including those that reduce the combined company's emissions intensity and support the transition to a lower carbon economy such as, in the near term, those related to cogeneration and the use of renewable power, and future potential investments related to hydrogen, carbon capture, utilization and storage, and liquified natural gas.

If you would like to sign up to KeyFacts Energy's free daily news-alert service click here to join our growing list of subscribers.