Inter Pipeline's Heartland Petrochemical Complex in Fort Saskatchewan, Alta. is shown in this undated handout photo. Pembina Pipeline Corp. has signed a deal to buy Inter Pipeline Ltd. for $8.3 billion in stock. THE CANADIAN PRESS/HO, Inter Pipeline *MANDATORY CREDIT*

CALGARY - Pembina Pipeline Corp. has signed a friendly deal to buy Inter Pipeline Ltd. for $8.3 billion in stock, surpassing a hostile bid by Brookfield Infrastructure Partners.

Under the deal, Inter Pipeline shareholders will receive half a Pembina share for each share of Inter Pipeline that they own.

The offer is valued at $19.45 per Inter Pipeline share based on the closing price of Pembina shares on Monday. Inter Pipeline shares closed at $17.55 but increased $1.53 or 8.7 per cent at $19.08 in afternoon trading on the Toronto Stock Exchange

The deal tops the offer made by Brookfield that was valued at $16.50 per share.

In March, CEO Chris Bayle said the Brookfield bid undervalued their business.

"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," said Margaret McKenzie, Inter Pipeline's chairwoman.

She added that the deal offers long-term benefits from the completion of the multibillion-dollar purchase of Heartland Petrochemical Complex.

The company said the complex is expected to generate $1.1 billion to $1.4 billion of adjusted cash flow from operating activities after dividends annually once it is in full service. It is expected to start service by 2022.

The boards of Pembina and Inter Pipeline have unanimously approved the deal, which also requires approval by at least two-thirds of Inter Pipeline shareholders. A majority vote by Pembina shareholders is also needed.

"We think that (shareholders) will most likely take this bid," said Matthew Taylor, director of infrastructure research with Tudor, Pickering, Holt & Co.

He said Pembina is well situated in the market to make the most of Inter Pipeline's operations while de-risking the Heartland Petrochemical Complex because of it's existing access to propane supply.

"They're getting an offer that's 18 per cent higher than the one that Brookfield provided, so from a shareholders perspective this screens attractively," said Taylor.

Taylor said he believes it's unlikely that Brookfield will come back with a counter-offer to Pembina's bid.

However Mike Archibald, vice-president and portfolio manager with AGF Investments Inc., said there's still a chance Brookfield could come back with another offer, saying the company tends to bid low at first.

"It's possible they come back, clearly they could afford to pay cash," said Archibald in an interview.

"That's not something that Pembina is likely able to do so it's possible that we see another bid for Inter Pipeline. It remains to be seen over the coming weeks how they want to push that."

Brookfield declined to comment on the matter on Tuesday afternoon.

Existing Pembina shareholders are expected to own 72 per cent of the combined company, while Inter Pipeline shareholders will hold 28 per cent.

Credit rating agency DBRS Morningstar said the deal will have a significant impact on Pembina's size and operational scale, and will potentially double its capacity to 6.2 million barrels of oil equivalent per day.

"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 Pembina chairman Randy Findlay in a statement.

"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."

This report by The Canadian Press was first published June 1, 2021.

Companies in this story: (TSX:PPL, TSX:IPL)

News from © The Canadian Press, 2021