Big changes are happening at Calgary-based Enbridge Inc. On Thursday, Enbridge announced a restructuring plan that will see it offer $11.4 billion in shares to investors in four of the company’s affiliated businesses. The proposed transaction will impact shareholders in Spectra Energy Partners, Enbridge Energy Partners, Enbridge Energy Management, and Enbridge Income Fund Holdings, with Enbridge making separate all-share offers to each of the affiliate companies. The transaction was triggered by changes in U.S. tax law. In March 2018 the U.S. Federal Energy Regulatory Commission decided to eliminate certain master limited partnerships’ income-tax allowances on cost-of-service rates.Previously, interstate natural gas and oil pipelines set up as pass-through companies were permitted to include an allowance for income taxes in the rates they charge customers. This essentially permitted pipeline companies that operated as ‘master limited partnerships’ (‘MLPs’) to recover income-tax costs twice. The updated FERC policy eliminated this benefit – severely impacting pipeline MLPs such Enbridge affiliates Enbridge Energy Partners and Spectra Energy Partners.
In other pipeline news,on Wednesday federal Finance Minister Bill Morneau announced that the federal government will cover Kinder Morgan Inc.’s losses caused by British Columbia’s efforts to delay the Trans Mountain pipeline expansion project. Morneau’s promise is merely the latest development in what has turned into a long, drawn-out battle. The pipeline was first proposed in 2013 as a way of increasing an existing pipeline’s capacity by 590,000 barrels of oil per day. Since the announcement, the pipeline has triggered protests, interprovincial trade wars and constitutional arguments. The federal government’s announcement of support was likely triggered by Kinder Morgan’s recently imposed deadline. The company has threatened to walk away from the project on May 31st unless the political and legal uncertainty facing the project can be removed – a fairly steep hurdle considering two court challenges are in the works against the project.
While most recent Canadian airline conversations have focused on WestJet’s looming pilot strike, another airline is hitting the news this week. On Tuesday the Quebec Superior Court justice authorized a class action against Air Canada by former Aveos Fleet Performance employees. Aveos was a subsidiary of Air Canada that was responsible for conducting maintenance work on airplanes in Montreal, Winnipeg and Vancouver. Air Canada sold most of its interest in Aveos back in 2007, and gradually shifted its contracts to other service providers. The loss of business was fatal to Aveos, and the company was forced to shutter operations and file for bankruptcy back in 2012. The recently authorized class action alleges that Air Canada both acted in bad faith, and violated the Air Canada Public Participation Act. Under the Act, Air Canada is obligated to keep its maintenance operations in Canada – a requirement the class alleges the company has failed to satisfy. If found guilty, the airline could be required to pay more than $100 million.
Saskatoon-based Nutrien Inc. sold most of its stake in Sociedad Química y Minera de Chile S.A. (‘SQM’ – a Chilean lithium producer) for US$4.1-billion this week.The sale, to China’s Tianqi Lithium Corporation, was put in motion to appease antitrust regulators in India and China. Nutrien was formed by the merger of Agrium and PotashCorp. in early 2018. The combination of the two companies created the worlds largest potash company – a fact that caused regulators in India and China to call for divestment of Potash’s offshore business interests.The transaction was approved after Nutrien offered to sell shares in the Arab Potash Company, SQM and Israel Chemicals Ltd. This week’s divestiture may have been called for by international regulators, but that doesn’t mean that it has been received with resounding applause. The sale will strengthen China’s hold on the world’s lithium reserves, which are becoming increasingly important as demand for electric vehicles continues to grow. When the Tianqi-Nutrien transaction was first proposed, the Chilean government attempted to block the deal, expressing concerns that China was gradually seizing control of the in-demand mineral.
And finally, an unexpected change in control was announced this week, and experts are pointing to the Trump administration’s tariff strategy as the catalyst. On Friday, Campbell Soup announced that longtime CEO Denise Morrison will be stepping down effective immediately.The company has struggled to keep up with changes in American tastes and preferences, but analysts have pointed to the firm’s rising costs as a more significant cause for concern. In March, the Trump administration announced that it would be imposing additional tariffs on imported steel and aluminum. The announcement caused alarm for many consumer-focused companies who rely on metals (examples include PepsiCo Inc. and Molson Coors Brewing), with Campbell’s CEO Anthony DiSilvestro predicting double-digit increases on steel and aluminum prices. Campbell’s change in management announcement was released along with the company’s third-quarter results, which showed a loss of $393 million.