Pembina, Inter file Alberta Securities Commissions applications regarding Brookfield disclosure concerns
Pembina Pipeline Corporation announced that Pembina and Inter Pipeline Ltd. have filed cross-applications with the Alberta Securities Commission to remedy disclosure issues and coercive tactics by Brookfield Infrastructure Partners L.P. and its affiliates (collectively, in relation to its inferior hostile take-over offer of Inter Pipeline (the "Take-Over Offer").
Pembina's President and Chief Executive Officer Mick Dilger added: "It is critically important that all shareholders involved in a large transaction be given transparency and a fair, unencumbered process to choose the deal that they determine to be in their best interests. This is equally important for sophisticated investors and individual retail holders. Brookfield cannot use its 'block' of shares to threaten the strategic merger with Pembina, while at the same time claiming that it does not control these shares and that they count toward acceptance of its tender offer. Brookfield is clearly conflicted and must step back and let Inter Pipeline's other shareholders choose the best offer."
Added Dilger, "Brookfield is pushing the same offer that has essentially been repackaged three times while trying to unfairly influence a democratic process to have that inferior transaction accepted. We are asking the ASC to bring some daylight into the process and protect shareholder rights."
The Inter Pipeline Board has unanimously recommended that shareholders support the strategic share-exchange transaction with Pembina (the "Strategic Combination"). In addition to greater immediate value, the Strategic Combination will give Inter Pipeline shareholders an immediate 175% increase to their monthly dividend, significant upside value due to the combined companies' synergies and accelerated growth outlook, and a tax-free rollover for taxable Canadian shareholders.
In its June 18, 2021, cross-applications to the ASC, Inter Pipeline explained how Brookfield has used opaque and unidentified financial contracts that avoid early warning obligations, build a "block" to prevent Inter Pipeline shareholders from approving the superior Strategic Combination, and circumvent the minimum tender requirements of their own Take-Over Offer:
- Between approximately June and October 2020, Brookfield entered into a series of cash-settled share swap transactions with an unknown swap dealer (collectively, the "Total Return Swap") for approximately 9.9% of the issued and outstanding common shares of Inter Pipeline (the "TRS Shares"), in addition to the 9.75% of the issued and outstanding common shares of Inter Pipeline that Brookfield and its affiliates had acquired directly. Brookfield did this in order to avoid its early warning reporting obligations;
- Brookfield has not disclosed the parties to or terms of the Total Return Swap, thus creating confusion in the capital market and maintaining an unfair informational disadvantage over Inter Pipeline, its shareholders and the capital market more generally;
- Brookfield did not disclose in its Take-Over Offer Circular (the "Offer Circular") the nature and extent of any business or other relationships between Brookfield and the swap dealer, which may motivate the swap dealer to tender the TRS Shares to the Take-Over Offer or otherwise act in accordance with the wishes of Brookfield;
- Brookfield is using the TRS Shares held by a captive counterparty (which Brookfield has recently characterized as forming part of the "Brookfield Block" in its public disclosure) to try to defeat approval of the Strategic Combination by Inter Pipeline shareholders;
- Simultaneously, Brookfield is using the TRS Shares held by a captive and compliant counterparty to subversively achieve the 50% minimum tender condition of its Take-Over Offer, claiming that the TRS Shares are not beneficially owned or controlled by Brookfield and its joint actors; and
- Since making its Take-Over Offer, Brookfield has repeatedly failed to certify, as required of a joint offeror, that the Offer Circular contains no untrue statement of material fact and does not omit to state any required material fact, as required by law.
To ensure that Brookfield does not continue to use the Total Return Swap in a manner that harms Inter Pipeline shareholders and the capital market, Inter Pipeline is seeking relief from the ASC pursuant to the Securities Act (Alberta), including orders that:
- Brookfield must provide full public disclosure in the Offer Circular setting out the material terms of the Total Return Swap, including the identities of the parties and fee arrangements, its terms and conditions, Brookfield's economic exposure and expiry or termination;
- Brookfield must disclose the instruments or contracts that govern the Total Return Swap;
- The TRS Shares shall be considered securities beneficially owned, or over which control or direction is exercised, by Brookfield, and therefore any TRS Shares that are tendered to the Take-Over Offer shall be excluded from the mandatory minimum tender conditions;
- The TRS Shares shall be deemed to be voted at the meeting of Inter Pipeline shareholders in respect of the Strategic Combination, currently scheduled for July 29, in the same proportion for and against approval of the transaction as all other Inter Pipeline Common Shares voted at the meeting, other than those beneficially owned or over which control or direction is exercised by Brookfield and any of its affiliates; and
- Brookfield must file a notice of change to the Offer Circular that clearly and accurately identifies all joint offerors and is properly certified by all joint offerors of the Take-Over Offer, including Brookfield and other members of the offeror group.
In its cross-application to the ASC, Pembina joined Inter Pipeline, adopting the entirety of its cross-application. In addition, Pembina seeks a cease trade order with respect to any securities issued or exchanged in connection with Brookfield's Take-Over Offer.
Pembina seeks all of this relief to ensure fairness and to allow Inter Pipeline shareholders to make their own choice.