Q: What are your thoughts on the announced acquisition? Do you feel its a good value pick vs. say Enbridge as the short term price may drop to near the subscription pricing around $20 and the acquisition is roughly 15% accretive. It would appear to me that one would get better downside protection and potentially an extra 20% share price increase over the mid term after the transaction closes.
5i Research Answer:
GEI is purchasing an export facility for $1.1 billion. The deal is being financed by a receipt offering of $350 million and the remainder through debt. The deal looks solid, with management citing immediate mid-teens cash flow accretion. There also appears to be some synergies here with a lot of overlap with GEI's current customer base.
We think the deal looks good but it is a sizable deal and does add debt to the balance sheet which comes with risks. We might wait and let markets digest the deal a little but between the valuation and growth potential with the acquisition we think GEI looks interesting for an investor looking for yield.