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UPDATE 4-Inter Pipeline rejects Brookfield's offer as too low, shares jump

(Adds deal milestone, updates share activity)

Feb 11 (Reuters) - Canada’s Inter Pipeline Ltd on Thursday rejected an unsolicited offer from its largest shareholder Brookfield Infrastructure Partners, but its shares jumped as investors bet on an eventual deal.

Brookfield, which acquires and manages infrastructure assets, said on Wednesday it intended to offer C$16.50 per share, a 23% premium to the stock’s prior closing price, and said it was willing to raise it to as much as C$18.25 if the pipeline operator gave it access to due diligence.

Inter Pipeline stock jumped 31% in Toronto to C$17.50, while Brookfield shares dropped 3%.

The pandemic has hit Canadian oil and gas companies hard, crushing fuel demand, and leading to reduced crude production. Inter Pipeline’s assets include over 7,000 km (4,300 miles) of pipelines and 5 million barrels of oil storage in Western Canada, as well as natural gas liquids processing plants.

At the top price, Brookfield’s offer would value Calgary-based Inter at C$7.8 billion ($6.16 billion) and would be the biggest Canadian oil and gas deal since 2017, according to data provider Dealogic.

Inter said that was not sufficient for it to enter into exclusive talks with the infrastructure firm.

The pipeline operator said Brookfield has not made a formal offer and if it does, the company’s board will review it with advisors. Brookfield declined further comment.

Brookfield’s offer is low, but serious enough that Inter Pipeline should negotiate, said Rob Thummel, managing director of TortoiseEcofin, Inter Pipeline’s eighth-largest shareholder according to Refinitiv.

“I think they should absolutely look at it and consider it,” he said. A rival bid seems unlikely given that the energy sector is focused on repaying debt and buying back shares, not acquisitions, he said.

Even so, Keyera Corp, another Canadian energy infrastructure company, may now attract some interest, said Thummel, who manages shares in that company as well.

Its shares rose 1.8%. Keyera could not be reached.

Brookfield said it had first approached Inter in September with offers at premiums as high as 50% to the company’s trading price.

The talks fell through as Inter had a “more optimistic outlook of future growth” and attached to itself a value that was well over Brookfield’s assessment, Brookfield said.

Several analysts sided with Brookfield, saying accepting the offer would be the most likely outcome for Inter Pipeline.

Brokerage RBC said many shareholders would be unhappy if Inter says no, particularly after it refused another offer two years ago, which had valued it at C$12.4 billion.

Inter Pipeline’s shares had fallen nearly 38% over the last year prior to Brookfield publicly expressing interest.

Brookfield Infrastructure has engaged BMO Capital Markets and Barclays Capital Canada Inc as joint financial advisers. Inter said it is working with TD Securities as its financial adviser.

$1 = 1.2658 Canadian dollars Reporting by Rod Nickel in Winnipeg, Maiya Keidan in Toronto, Shariq Khan and Arundhati Sarkar in Bengaluru; Editing by Arun Koyyur, Bernadette Baum and David Evans

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