Texas lawyers at two firms had a hand in Pembina Pipeline Corp.’s agreement to purchase Kinder Morgan Inc.’s 70% stake in Kinder Morgan Canada Ltd. and the U.S. portion of Kinder Morgan’s Cochin pipeline system for C$4.35 billion ($3.3 billion).
Latham & Watkins was Pembina’s U.S. legal advisor with a team led by New York partner Christopher Cross and Houston partner Jesse Myers with help from Houston associates Lauren Anderson, Michael Sellner and Sarah McLeroy.
Houston specialists included tax partner Tim Fenn and associate Jared Grimley; environmental partner Joel Mack; and finance partner Trevor Wommack and associate Benjamin Gelfand.
Stikeman Elliott was Pembina’s Canadian legal advisor with a group led by partner Chris Nixon in Calgary. Its in-house counsel included chief legal officer Harry Anderson, general counsel Chris Scherman, senior legal counsel Juliamai Giffen and legal counsel Helen Cox.
Bracewell was Kinder Morgan’s U.S. legal advisor, including partners Cle Dade and Lytch Gutmann.
Other Texas attorneys on the deal were partners Troy L. Harder, Heather L. Brown, Scott C. Sanders and Rebecca L. Baker in Houston and Timothy A. Wilkins in Austin and associates Kate B. McGregor, Kathy Witty Medford and Jay N. Larry, all of Houston. The team also had help from attorneys in the firm’s New York and Washington, D.C., offices.
Blake, Cassels & Graydon (partner Olga Kary in Calgary) was Kinder Morgan’s Canadian legal advisor and Goodmans counseled its special committee on the transaction.
Kinder Morgan’s in-house team was led by general counsel Catherine Callaway James, who joined the company in February after serving as general counsel of Dynegy, which was acquired by Vistra last year. Kinder Morgan’s previous general counsel, James Curtis “Curt” Moffatt, died unexpectedly in December.
Others on Kinder Morgan’s legal team were deputy general counsel Adam Forman, managing counsel Eric McCord and assistant general counsel Angela Teer.
J.P. Morgan was Kinder Morgan’s financial advisor while BMO Capital Markets assisted the special committee. TD Securities Inc. was Pembina’s financial advisor.
The deal values Kinder Morgan Canada at C$2.3 billion, or C$15.02 per share, based on a stock exchange that represents a 32% premium as well as assumed debt. The transaction for the U.S. part of the Cochin is valued at C$2.05 billion in cash.
As The Texas Lawbook previously reported, analysts thought Houston-based Kinder Morgan might sell its remaining stake in Kinder Morgan Canada after it encountered opposition to the Trans Mountain pipeline system and development project in British Columbia. It sold the project to the Canadian government’s Canada Development Investment Corp. this past summer for $3.5 billion (Sidley Austin partners David Asmus and Jim Rice in Houston advised the buyer on that deal).
“Punting to Pembina” is how Jefferies analyst Christopher Sighinolfi characterized the move, noting Kinder Morgan’s alternative option to grow the unit as a standalone entity. “We find this quick pivot interesting,” he said.
Kinder Morgan said it plans to use the cash proceeds from Cochin to reduce net debt, a move that would shrink its debt-to-adjusted EBITDA ratio to 4.4 times versus an expected 4.6 times by year-end. The company said it expects to ultimately convert its Pembina shares into cash but in an “opportunistic and non-disruptive manner.”
Kinder Morgan Inc. CEO Steve Kean said in a statement that the deal is attractive for Kinder Morgan and Kinder Morgan Canada shareholders. “It enables KMI [Kinder Morgan Inc.] to reduce leverage and gives us the flexibility to create additional value for shareholders through share buybacks, project investments or both.”
The transaction includes the Edmonton storage and terminal business and Vancouver Wharves, a bulk storage and export/import business.
Cochin is a fully contracted cross-border pipeline system that connects Pembina’s Channahon, Bakken and Edmonton area assets and is connected to markets in Mont Belvieu, Conway and Edmonton.
Pembina said Kinder Morgan Canada’s crude oil storage and terminaling business in Western Canada connects Pembina’s conventional and oilsands pipelines to all major export pipelines, “providing increased flexibility and greater egress options to customers.”
There’s also potential to link the eastern leg of Cochin to Pembina’s assets and markets in Sarnia, Ontario, and to integrate Vancouver Wharves’ assets into its asset chain, the buyer said.
Pembina anticipates the transaction will immediately add to adjusted cash flow per share and increase its fee-for-service and take-or-pay component of adjusted EBITDA.
The assets being acquired are expected to generate adjusted EBITDA of C$350 million this year. Pembina thinks it can boost that number by C$50 million per year within five years through integration and nominal capital investment and C$50 million through expansion opportunities.
“This acquisition is highly strategic for Pembina, providing enhanced integration with our existing franchise, entrance into exciting new businesses and clear visibility to creating long-term value for our shareholders,” Pembina CEO and president Mick Dilger said in a statement.
The acquisition of Kinder Morgan Canada has to clear shareholders and regulators and is expected to close in the first half of next year.
Pembina plans to fund the Cochin purchase through its C$2.5 billion unsecured credit facility and a new C$1 billion committed term facility. The company expects to refinance that facility by issuing medium-term notes.