TheCountryCaller takes a look at why Spectra Energy was up today
Enbridge Energy Partners, LP (NYSE:EEP) in a press release today announced that it would acquire the Houston-based natural gas infrastructure company, Spectra Energy Corp. (NYSE:SE). Both the companies have gone into a definitive merger agreement. The agreement is an all-stock deal valuing at around $28 billion (C$37 billion). The value for the deal is derived taking Enbridge’s closing share price on September 2.
Consolidation in the energy sector continues to gain popularity as more and more companies decided to amalgamate operations to survive the downturn in the oil market. The downfall of the crude market has now extended to over two years and continues to weigh in on the profitability and margins of companies located in the oil and gas industry.
While news of an Organization of Petroleum Exporting Countries (OPEC) and a Russian collaboration has allowed crude oil prices to trade in the green, they still remain at extremely low levels. The US benchmark for crude oil, West Texas Intermediate (WTI) as at 3:03 PM EST was up 0.97% at $44.87 per barrel, while the global benchmark for crude oil, Brent Crude was down 0.61% at $47.34 per barrel.
The deal would allow both the companies to diversify their operations and mitigate risk in the process. In addition to the diversification, the combined entity would bring itself numerous other benefits as well.
The company would be able to further improve its investment grade balance sheet, pay higher dividends, dominate the industry in terms of returns and secure its incoming cash flows. CEO and President of Enbridge, Al Monaco regarding the deal said that “This transaction is transformational for both companies and results in unmatched scale, diversity and financial flexibility with multiple platforms for organic growth.”
Greg Abel, President and CEO of Spectra also expressed optimism and said that: “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.”
Shares of Spectra were skyrocketing after the news as they soared 13.89% at $41.16.