5 Min Read
* Spectra shareholders to get 0.984 shares of merged company
* Enbridge CEO Al Monaco to lead company
* Deal's enterprise value $127 billion
* Spectra shares up more than 10 pct, Enbridge up 4 pct (Adds graphic link)
By Richa Naidu and Sweta Singh
Sept 6 (Reuters) - Canada's Enbridge Inc said on Tuesday it would buy Spectra Energy Corp of Houston in an all-stock deal valued at about $28 billion (C$37 billion) to create the largest North American energy infrastructure company.
The takeover, the most significant energy deal since oil and natural gas prices crashed in mid-2014, highlights how pipeline companies are under pressure to merge as they grapple with overcapacity and sliding tariffs that have slowed dividend growth and unnerved investors.
Enbridge's biggest-ever deal will consolidate its leading position next to U.S. transport giants Kinder Morgan Inc and Plains All American Pipeline LP, which have seen their stock prices sink over the last two years as oil and gas producers slash spending on new wells.
Enbridge's pipelines mainly send Canadian oil sands to refiners on the U.S. Gulf Coast, while Spectra's network ships natural gas to the U.S. East Coast.
The deal has no serious antitrust problems as the companies' networks have "limited overlap," said Bruce McDonald, an antitrust expert with Jones Day law firm.
The U.S. Federal Energy Regulatory Commission did not comment.
Spectra shares leapt 13 percent to $40.89, their biggest jump in more than three years. Despite having risen some 50 percent since January on a partial recovery in oil and gas prices, Spectra's shares are still down 16 percent from a high of $43 hit in July 2014.
Enbridge's U.S.-listed shares rose 4.3 percent to $42.77 and its Toronto-listed shares bounced.
Under the terms of the deal, Spectra shareholders will get 0.984 shares of the combined company for each share held. This is equal to $40.33 per share, representing a premium of about 11.5 percent to Spectra's closing price on Friday.
That premium was small compared to the 32.4-percent premium Energy Transfer offered for Williams Companies Inc in a 2015 deal that ultimately failed.
The Enbridge-Spectra deal has an enterprise value of $127 billion, the companies said. Enbridge will issue about 694 million new shares and take on about $22 billion of Spectra debt. Enbridge also said it planned to divest about $2 billion of non-core assets over the next year.
Enbridge Chief Executive Al Monaco will lead the combined company, which will be headquartered in Calgary. Greg Ebel, Spectra's CEO, will be non-executive chairman.
"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," Monaco said in a statement.
After the close of the deal, Enbridge shareholders will own about 57 percent of the combined company, which is expected to deliver annual savings of C$540 million, most of which are expected to be achieved in late 2018.
Despite lots of talk about an M&A wave, only a handful of energy acquisitions have happened since oil and gas prices entered their worst slump in a generation as buyers and sellers have been unable to agree on prices.
But now more deals are starting to get done.
On Tuesday, EOG Resources Inc, a leading U.S. shale oil producer, said it would buy privately held Yates Petroleum Corp, which has assets in the Permian Basin of West Texas and New Mexico, for $2.5 billion.
TransCanada Corp, Canada's second-largest pipeline operator, completed its $10.2 billion takeover of Columbia Pipeline Group in July.
Enbridge bought a minority stake in the Bakken Pipeline last month. It also won an auction for a stake in EnBW's Hohe See, a European offshore wind power project, according to a source familiar with the matter.
Credit Suisse Securities (Canada) and RBC Capital Markets were Enbridge's financial advisers, while Sullivan & Cromwell LLP and McCarthy Tétrault LLP were its legal advisers.
BMO Capital Markets and Citi were Spectra Energy's financial advisers and Wachtell, Lipton, Rosen & Katz and Goodmans LLP its legal advisers. Skadden, Arps, Slate, Meagher & Flom LLP advised Spectra on tax issues. The deal is slated to close in early 2017.
Reporting by Richa Naidu, Sruthi Shankar and Sweta Singh in Bengaluru, Ernest Scheyder in Houston and Diane Bartz in Washington; Additional reporting by Sruthi Shankar; Editing by Terry Wade and Nick Zieminski