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* Pembina to pay as much as C$1.52 bln in cash, 99.5 mln in shares
* Offer at 22.5 pct premium to Veresen's last close
* To pay either 0.4287 of Pembina share or C$18.65 in cash (New throughout, updates share prices, adds comments from chief executive and analyst, background on consolidations)
By Swetha Gopinath and Ethan Lou
May 1 Pembina Pipeline Corp will buy smaller rival Veresen Inc in a C$9.7 billion ($7.10 billion) stock-and-cash deal, the expanding Canadian company said on Monday, the latest deal in a sector that has been consolidating in the face of low commodity prices and high costs.
With prices slow to rebound from a two-year slump, pipeline companies have been under pressure to merge as they grapple with overcapacity and sliding tariffs. Investors have doubted the sector's ability to generate returns, with no major projects on the horizon beyond a few currently approved ones.
The combined company boasts a market capitalization of C$22.7 billion, pushing third-place Pembina further ahead of smaller rivals and closer to the realm of giants C$91.4 billion Enbridge Inc and C$54.7 billion TransCanada Corp .
The new company would be better positioned to finance Veresen's larger-scale growth projects, such as the $7.5 billion Jordan Cove liquefied natural gas project and the C$8 billion-C$10 billion twinning of the Alliance pipeline, said National Bank of Canada analyst Patrick Kenny.
The deal also gives Pembina access to Veresen's natural gas pipelines and processing infrastructure, granting it a stronger position in the Western Canadian Sedimentary Basin, home to major gas plays such as the Montney.
Pembina Chief Executive Officer Michael Dilger said on a conference call that regarding Montney, "we get a do-over there" with the deal.
The offer represents a 22.5 percent premium to Veresen's last close, the companies said. Pembina's shares were down about 4.1 percent at C$41.72. Veresen shares jumped more than 18 percent to C$18.12.
After the deal, Pembina will own about 5.8 billion cubic feet per day of gas processing infrastructure across Western Canada by 2018.
The combined company will have about 3 million barrels of oil equivalent per day of pipeline capacity.
"When we combine with Veresen who is...68 percent pipelines, we put the P back in pipelines in our name," Dilger said.
At present, pipelines account for about 46 percent of the margins of Pembina.
"VSN's deep inventory of well-head oriented expansions should pair nicely with Pembina's role as liquids aggregator across the (Western Canadian Sedimentary Basin)," analysts at Tudor, Pickering, Holt & Co said.
The deal is the latest in a wave of consolidation in the industry. In September, Enbridge announced a $28 billion acquisition of Spectra Energy. That followed TransCanada's $10 billion purchase of Columbia Pipeline Group in March last year.
Pembina said it would pay as much as about C$1.52 billion in cash and 99.5 million in shares.
CIBC World Markets Inc is Pembina's financial adviser, while Scotiabank is advising Veresen. ($1 = 1.3668 Canadian dollars)
(Reporting by Swetha Gopinath in Bengaluru and Ethan Lou in Calgary, Alberta; editing by Shounak Dasgupta and David Gregorio)
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