Enbridge/Spectra Energy join forces to create global energy infrastructure leader

BY Fraser Tennant

In a combination that will create a “true North American and global energy infrastructure leader”, Enbridge and Spectra Energy are to join forces in a deal with an enterprise value of C$37bn (US$28bn). 

Under the terms of the definitive merger agreement, which creates the largest energy infrastructure company in North America and one of the largest globally, Spectra Energy shareholders will receive 0.984 shares of the combined company for each share of Spectra Energy common stock they own.

The combined company will control a diverse set of best-in-class assets comprised of crude oil, liquids and natural gas pipelines, terminal and midstream operations, a regulated utility portfolio and renewable power generation.

“Over the last two years, we’ve been focused on identifying opportunities that would extend and diversify our asset base and sources of growth beyond 2019,” said Al Monaco, president and chief executive of Enbridge Inc. “We are accomplishing that goal by combining with the premier natural gas infrastructure company to create a true North American and global energy infrastructure leader.  This transaction is transformational for both companies and results in unmatched scale, diversity and financial flexibility with multiple platforms for organic growth.”

The combined company will be called Enbridge Inc.

“The combination of Enbridge and Spectra Energy creates what we believe will be the best, most diversified energy infrastructure company in North America, if not the world," said Greg Ebel, president and chief executive of Spectra Energy, who will become chairman of Enbridge following the closing of the transaction.

He added: “This is an incredible opportunity for both companies and we at Spectra Energy could not be more excited about what it means going forward. Together, the merged company will have what we believe is the finest platform for serving customers in every region of North America and providing investors with the opportunity for superior shareholder returns.”

The Enbridge/Spectra Energy transaction has been unanimously approved by the boards of directors of both companies and is expected to close in the first quarter of 2017 - subject to shareholder and certain regulatory approvals, as well as other customary conditions.

Mr Monaco concluded: “Bringing Enbridge and Spectra Energy together makes strong strategic and financial sense, and the all-stock nature of the transaction provides shareholders of both companies with the opportunity to participate in the significant upside potential of the combined company.”

News: Enbridge buying Spectra in $28 billion deal

Dealmaking drives shareholder returns

BY Richard Summerfield

Organisations that regularly buy and sell companies as part of their wider corporate strategy often outperform less active acquirers in terms of shareholder returns, according to a new report from the Boston Consulting Group (BCG).

According to the firm's 2016 M&A report 'Masters of the Corporate Portfolio', over a 25 year period up to 2015, the average annual shareholder return for companies that make at least five acquisitions or divestitures in a five-year period was 10.5 percent. One time dealmakers, however, saw returns of just 5.3 percent.

"Portfolio masters use active portfolio management via M&A to boost shareholder return," said Jens Kengelbach, BCG's global head of M&A and co-author of the report. "These companies buy and sell in order to fine-tune, refocus, or diversify their portfolios. They understand that growth is the primary driver of TSR, almost regardless of whether growth is organic or inorganic. They estimate synergies and postmerger integration costs accurately, and they deliver on their projections. They create value."

The report compares three types of dealmakers: ‘portfolio masters’, ‘strategic shifters’ and ‘one-timers’. The company’s data shows that portfolio masters accounted for just 6 percent of the 1339 companies surveyed, but were responsible for around 25 percent of global deal volume since 1991. In that time, portfolio masters completed nearly 14,000 transactions. By comparison, so called ‘one-timers’ made, on average, one acquisition or divestiture each over a five-year period. But, with a combined count of 18,891 deals since 1991, they represent 35 percent of total M&A deals globally.

"Investors like one-time dealmakers -- at least in the short term," said Georg Keienburg, a BCG principal and report co-author. "Capital markets tend to buy into the story of a once-in-a-lifetime opportunity for acquirers. They are also appreciative when a company sheds a noncore asset that it may have held onto for too long. As a result, the initial capital market reaction in a narrow time window around the transaction is distinctly more positive (an average increase of 5.5 percent) for one-time dealmakers than for their more active counterparts."

Companies can improve their shareholder returns by improving their standing in the M&A market, according to BCG. Indeed, the classifications of companies can be fluid, and by evolving from being considered a one-timer to strategic shifter or portfolio master, companies can drive shareholder value.

Report: The 2016 M& Report – Masters of the Corporate Portfolio

ChemChina’s $43bn Syngenta acquisition gets US clearance

BY Fraser Tennant

China National Chemical Corporation (ChemChina) and Swiss pesticides and seeds group Syngenta announced that have received clearance from a US regulator on their proposed $43bn transaction.

The acquisition of Syngenta by ChemChina – which, once complete, will be the biggest ever foreign acquisition by a Chinese company – was given the go-ahead by the Committee on Foreign Investment in the United States (CFIUS), a body tasked with ensuring that deals do not have national security implications (a quarter of the Swiss firm’s sales are in North America).

The decision by CFIUS to approve the deal is being viewed as the clearing of a significant hurdle, with shares in Syngenta – a Basel-based company employing 28,000 people in more than 90 countries – jumping 10 percent following the US committee’s accord.  

A joint statement issued by ChemChina and Syngenta stated: “In addition to CFIUS clearance, the closing of the transaction is subject to anti-trust review by numerous regulators around the world and other customary closing conditions. Both companies are working closely with the regulatory agencies involved and discussions remain constructive. The proposed transaction is expected to close by the end of the year."

Originally announced in February 2016, with ChemChina offering $465 per share for Syngenta, the transaction ran into problems when concerns arose that CFIUS could potentially block the deal. At this stage, Syngenta shares had fallen by approximately 20 percent.

Syngenta's chairman Michel Demaré, while stating that he was “convinced there was no security issue to be concerned about” in ChemChina’s bid for his company, also opined that the Chinese company “has a very ambitious vision of the industry in the future".

Headquartered in Beijing, state-owned ChemChina is the largest chemical corporation in China, and occupies the 234th position among the Fortune 500. The company’s main businesses include materials science, life sciences, high-end manufacturing and basic chemicals.

In addition to its current activities, ChemChina also has an impressive track record of acquisitions, having procured nine leading industrial companies in France, the United Kingdom, Israel, Italy and Germany, among others.

Although characterised as a mega deal in the chemicals industry, the ChemChina/Syngenta transaction is significantly smaller than last year’s $130bn Dow Chemical-DuPont merger in December 2015, itself the subject of an investigation, by the European Commission in Brussels, into whether or not the merger of the US chemical giant could adversely impact farmers in Europe.

News: Powerful U.S. Panel Clears Chinese Takeover of Syngenta

Pfizer seals $14bn Medivation deal

BY Richard Summerfield

In its largest deal since its $152bn merger with Allergan was terminated in April, pharmaceutical powerhouse Pfizer Inc has announced that it will acquire US drug manufacturer Medivation Inc – producer of the best selling cancer drug Xtandi – in a deal worth $14bn.

The transaction, according to a statement released by the firms, will see Pfizer pay around $81.50 a share in cash for the company which had been the subject of furious takeover speculation of late. Indeed, a number of other pharmaceutical companies made offers for Medivation in an auction after it rebuffed an offer of $9.3bn by French drug maker Sanofi. Rival US firms Merck & Co and Celgene are also believed to have pursued deals for Medivation since Sanofi’s offer proved unsuccessful; however, it was Pfizer that was able to clinch the deal.

Speculation around a potential deal for the company helped to double Medivation’s share price over the last few months. In February, its stock was trading at less than $30 per share. Although Medivation’s stock price has climbed recently, the agreed deal price will still see Pfizer pay a 21 percent premium on Medivation’s share price on Friday, the last trading day before the deal was announced.

Oncology related drugs have proved to be a popular deal driver in recent years and the success of Xtandi has also helped to send Medivation’s stock price soaring. Xtandi is the leading novel hormone therapy available in the US today and generated approximately $2.2bn in worldwide net sales over the past four quarters. Furthermore the drug is expected to generate $5.7bn in sales by 2020.

“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” said Ian Read, chairman and chief executive of Pfizer. “The addition of Medivation will strengthen Pfizer’s Innovative Health business and accelerate its pathway to a leadership position in oncology, one of our key focus areas, which we believe will drive greater growth and scale of that business over the long-term. This transaction is another example of how we are effectively deploying our capital to generate attractive returns and create shareholder value.”

Though Xtandi is Medivation’s only marketed product, the company has a strong pipeline of other cancer drugs in late-stage clinical development. Potential breast cancer treatment talazoparib and a potential lymphoma drug will sit alongside Xtandi and a number of other oncology related products offered by the newly merged Pfizer who were slow out of the gates when it comes to cancer treatments. The company has been playing catch up in the oncology field and the deal for Medivation will go a long way toward closing the gap.

News: Pfizer boosts cancer drug roster with $14 billion Medivation deal

AIG to divest mortgage unit for $3.4bn

BY Richard Summerfield

American International Group Inc. (AIG), the largest commercial insurer in the United States and Canada, has announced that it has agreed a deal to sell its mortgage-guarantee unit to Arch Capital in a deal worth around $3.4bn, pending customary regulatory approvals. The deal is expected to close in either Q4 2016 or Q1 2017.

Under the terms of the deal, AIG will receive around $2.2bn in cash from the sale, $250m in Arch Capital's perpetual preferred stock and $975m in non-voting common-equivalent preferred stock from the sale of United Guaranty Corp (UGC).

The sale of the mortgage unit comes as AIG increases its efforts to return cash to its increasingly agitated shareholders. The company has come under considerable pressure from activist shareholder Carl Icahn, and as a result had agreed to pursue the sale of the mortgage unit, cut a number of jobs and sell its broker-dealer network. Mr Icahn had proposed splitting AIG into three distinct smaller companies.

According to a statement announcing the sale, the combination of Arch’s existing mortgage insurance business with UGC’s established business will create the largest private mortgage insurer in the world, based on insurance in-force, with a global footprint.

Constantine Iordanou, chairman and chief executive of Arch, noted: “We are extremely pleased to be able to expand our private mortgage insurance business through the acquisition of United Guaranty. Our mortgage insurance segment expands and complements our strengths in the specialty insurance and reinsurance businesses, which continue to be central to our global, diversified operations.”

The company will retain some aspects of its mortgage-insurance business under an existing agreement between UGC and AIG subsidiaries covering 2014 to 2016, and will therefore retain some of the earnings from the unit. UGC had been one of AIG’s most profitable units in recent years, and generated $350m in pretax operating income in the first half of 2016. AIG’s company-wide pretax income was around $2.57bn.

“We are excited about this deal and what it means to AIG and the talented professionals at UGC. It further streamlines AIG into a more focused insurer and enhances our capital position, in keeping with commitments AIG made to the market in early 2015 and restated earlier this year,” said Peter Hancock, president and chief executive of AIG. “The transaction also maintains AIG’s presence in a profitable market through a stake in a market leader that shares our focus on risk-based pricing and analytics as the foundation for our industry’s future. We are leaving UGC in the good hands of a forward looking management team.”

News: AIG to sell unit to Arch Capital for $3.4 billion