Enbridge (ENB), Spectra Energy (SE) in $28B Stock-for-Stock Merger Agreement

September 6, 2016 6:31 AM EDT

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--  Creates largest energy infrastructure company in North America with
C$165(1 ) billion (US$127 billion) enterprise value
-- Anticipated 15 percent annualized dividend increase in 2017 and annual
10-12 percent dividend growth thereafter through 2024. Industry leading
secured project and risked development inventory of C$74 billion (US$57
billion) with C$26 billion (US$20 billion) currently in execution
-- Complementary and diversified asset base to increase customer service
offerings and optionality
-- Enhanced ability to pursue projects that will improve customer access
and service
-- Strengthens investment grade balance sheet
-- 96 percent of cash flow generated by cost-of-service, take-or-pay, or
fee-based contracts
-- Industry-leading total return potential

Enbridge Inc. (NYSE: ENB) (Enbridge) and Spectra Energy Corp (NYSE: SE) (Spectra Energy) today announced that they have entered into a definitive merger agreement under which Enbridge and Spectra Energy will combine in a stock-for-stock merger transaction (the "Transaction"), which values Spectra Energy common stock at approximately C$37 billion (US$28 billion), based on the closing price of Enbridge's common shares on September 2, 2016. The combination will create the largest energy infrastructure company in North America and one of the largest globally based on a pro-forma enterprise value of approximately C$165 billion (US$127 billion). The Transaction was 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, and other customary conditions.

Under the terms of the Transaction, Spectra Energy shareholders will receive 0.984 shares of the combined company for each share of Spectra Energy common stock they own. The consideration to be received by Spectra Energy shareholders is valued at US$40.33 per Spectra Energy share, based on the closing price of Enbridge common shares on September 2, 2016, representing an approximate 11.5 percent premium to the closing price of Spectra Energy common stock on September 2, 2016. Upon completion of the Transaction, Enbridge shareholders are expected to own approximately 57 percent of the combined company and Spectra Energy shareholders are expected to own approximately 43 percent. The combined company will be called Enbridge Inc.

This combination brings together two highly complementary platforms to create North America's largest energy infrastructure company and meaningfully enhances customer optionality. With an asset base that includes 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, the combined company will be positioned to provide integrated services and first and last mile connectivity to key supply basins and demand markets. On a combined basis for the 12 months ended June 30, 2016, the company would have generated combined revenues in excess of C$40 billion (US$31 billion) and combined Earnings before Interest and Taxes (EBIT) of C$5.8 billion (US$4.4 billion), and will have the scale, balance sheet strength, financial flexibility and free cash flow to comfortably fund future growth.

"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 Officer, 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."

Greg Ebel, President and Chief Executive Officer of Spectra Energy, who will become chairman of Enbridge following the closing of the Transaction, said, "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. 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."

Mr. Monaco added, "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. With combined secured projects in execution of C$26 billion (US$20 billion) and another C$48 billion (US$37 billion) of projects under development, the Transaction allows us to extend our anticipated 10-12 percent annual dividend growth through 2024. We believe our combination of best-in-class assets, superior growth and strong commercial underpinning of our business will be unrivaled in our sector. Importantly, we will preserve and enhance our shareholder value proposition, which centers on delivering consistent growth with a low-risk business model.

"This is also a combination of two companies, management and staff that have a shared vision and talented teams that are dedicated to serving customers and providing the energy that people want and need, safely and reliably every day. We look forward to welcoming Spectra Energy employees to Enbridge as we move forward as one company. In building on our existing strengths by joining with Spectra Energy, Enbridge will be very well positioned for future growth and continued value creation."

Mr. Ebel added, "The strength of the combined company will support a large capital program to fund the continued development of Spectra Energy's existing, preeminent project inventory in addition to allowing the combined company to compete for and win the most attractive new growth projects - all while maintaining expected strong dividend growth with exceptional coverage. The transaction premium recognizes the strength of Spectra Energy's world-class natural gas pipeline system and significant expansion program, while providing shareholders the opportunity to participate in the unparalleled value creation potential of the combined company. While our assets are largely complementary, our values are shared, and together we will create a best-in-class company for shareholders, employees, customers, and communities alike."

Compelling Value Proposition

--  Six leading strategic growth platforms: The combined company brings
together many of the highest quality energy infrastructure assets in
North America: liquids and gas pipelines; US and Canadian midstream
businesses; a top tier regulated utility portfolio; and a growing
renewable power generation business. A map of the assets of the combined
entity is available at www.enbridge.com and www.spectraenergy.com.

-- Secure, low-risk commercial structure with stable long-term cash flow
visibility: 96 percent of pro-forma free cash flow is underpinned by
long-term commercial agreements (cost-of-service, take-or-pay, of fixed
fee); 93 percent of customers are strong, investment grade or equivalent
counterparties; less than 5 percent of combined pro-forma cash flow will
have direct exposure to commodity price risk.

-- Largest and most secure program of diversified organic growth projects
in the industry: Together, Enbridge and Spectra Energy bring C$26
billion (US$20 billion) in secured capital and a C$48 billion (US$37
billion) inventory of probability weighted projects in development.

-- Strong balance sheet, growing cash flow and access to capital markets to
fund large capital program: The combination is expected to result in
sufficient internally generated cash flow to fund growth and improve
balance sheet strength. Enbridge will have multiple, cost-effective
funding sources and be even more competitive in capturing opportunities.

-- Attractive dividend yield with visible organic dividend growth: The
combined company's C$74 billion (US$57 billion) organic growth platform
is expected to support a highly visible dividend growth rate of 10-12
percent through 2024, including an anticipated aggregate increase of 15
percent in 2017 post closing, while maintaining a conservative payout of
50-60 percent of available cash flow from operations (ACFFO). This
provides an industry leading total return driven by a strong, low-risk
dividend yield.

-- Achievable cost synergies: The combination is expected to achieve annual
run-rate synergies of C$540 million (US$415 million), the majority of
which should be achieved in the latter part of 2018. In addition,
approximately C$260 million (US$200 million) of tax savings can be
achieved through utilization of tax losses commencing in 2019.

-- Complementary businesses, shared culture and values support smooth
integration: Enbridge and Spectra Energy have similar business and
operational models, talented teams, common cultures and values,
including shared commitment to safety, stewardship of the environment,
meaningful stakeholder engagement and investing in communities.

Leadership, Governance and Structure

Upon closing of the Transaction, Al Monaco will continue to serve as President and Chief Executive Officer of the combined company. Greg Ebel will serve as non-executive Chairman of Enbridge's Board of Directors.

Enbridge's Board of Directors is expected to have a total of 13 directors consisting of 8 members designated by Enbridge, including Mr. Monaco, and 5 members designated by Spectra Energy, including Mr. Ebel.

The senior management team of the combined entity will be communicated in due course. On closing, the following appointments will take effect:

Guy Jarvis, President, Liquids Pipelines & Major Projects

Bill Yardley, President, Gas Transmission & Midstream

John Whelen, Executive Vice President & Chief Financial Officer

The headquarters of the combined company will be in Calgary, Alberta. Houston, Texas will be the combined company's gas pipelines business unit center; Edmonton, Alberta will remain the business unit center for liquids pipelines, with gas distribution continuing to be based in Ontario.

Enbridge and Spectra Energy will immediately establish an integration planning team composed of leaders from both management teams to prepare for and oversee the effective and timely integration of the businesses. The approach to integration planning will be collaborative, drawing on strong participation from both companies, and ensuring continuity for customers and other stakeholders.

On closing the Enbridge common shares to be issued in connection with the Transaction will be listed on the TSX and NYSE. Spectra Energy common stock will be delisted from the NYSE.

Financial Considerations

Enbridge expects the Transaction to be neutral to its 12 percent to 14 percent secured ACFFO per share CAGR guidance through the 2014-2019 time period, and strongly additive to its growth beyond that timeframe. Enbridge is committed to maintaining the financial strength of the combined company. The funding program is designed to ensure strengthening of the balance sheet with the objective of maintaining strong investment grade credit ratings. Enbridge expects it will divest of approximately $2 billion of non-core assets over the next 12 months to provide additional financial flexibility.

At closing, Enbridge Energy Partners, LP and Spectra Energy Partners, LP are expected to continue to be publicly traded partnerships headquartered in Houston, Texas. Enbridge Income Fund Holdings will remain a publicly traded corporation headquartered in Calgary, Alberta.

Timing and Approvals

The Transaction is expected to close in the first quarter of 2017 subject to the receipt of both companies' shareholder approvals, along with certain regulatory and government approvals, including compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval under Canada Competition Act, and the satisfaction of other customary closing conditions.


Credit Suisse Securities (Canada), Inc. acted as Lead Financial Advisor and delivered an opinion to Enbridge's Board of Directors. RBC Capital Markets also acted as financial advisor to Enbridge and delivered an opinion to Enbridge's Board of Directors. Sullivan & Cromwell LLP and McCarthy Tetrault LLP were legal advisors to Enbridge.

BMO Capital Markets and Citi acted as Joint Lead Financial Advisors to Spectra Energy's Board of Directors. Wachtell, Lipton, Rosen & Katz and Goodmans LLP acted as legal advisors to Spectra Energy and Skadden, Arps, Slate, Meagher & Flom LLP acted as tax counsel.


Enbridge and Spectra Energy will hold a joint conference call on September 6, 2016 at 8:00 a.m. Eastern Time (6:00 a.m. Mountain Time) to discuss the Transaction.

The conference call will begin with presentations by Enbridge's President and Chief Executive Officer and Spectra Energy's Chairman, President and Chief Executive Officer, followed by a question and answer period for investment analysts.

Analysts, members of the media and other interested parties can access the call toll-free at 1-866-610-1072 or within and outside North America at 1-973-935-2840 using the access code of 77468882. The call will be audio webcast live here. A webcast replay and podcast will be available approximately two hours after the conclusion of the event and a transcript will be posted to the website within 24 hours. The replay will be available at toll-free 1-800-585-8367 or within and outside North America at 1-404-537-3406 (access code 77468882) for seven days after the call.

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