Keyera closes Plains acquisition despite challenge from Competition Bureau

Canada’s Keyera announced on May 12 that it had completed the acquisition of Plains Midstream Canada, a subsidiary of Plains All American Pipeline that owns substantially all of Plains’ Canadian natural gas liquids (NGLs) business.

The acquisition cost CAD5.3bn ($3.9bn), including closing adjustments. The transaction was funded through previously issued subscription receipts, cash on hand and previously issued debt financing, Keyera said.

The closing of the transaction comes despite an announcement earlier in May by Canada’s federal Competition Bureau that it was applying to the Competition Tribunal – which is independent from the bureau – to challenge the acquisition. The regulator said that following an “extensive” investigation, it had concluded that the acquisition of Plains’ Canadian NGLs business by Keyera was “likely to harm competition” in NGL processing at Fort Saskatchewan, Alberta. This is Canada’s primary hub for NGL processing, the Competition Bureau noted.

“By eliminating Plains as an independent competitor, the proposed transaction would reduce the number of major integrated service providers at the hub from three to two, limiting producers’ choice among providers for processing services and weakening competitive discipline in contract negotiations,” the regulator said. “The bureau’s review concluded that this structural change would increase the merged firm’s ability to increase prices and impose less favourable contract terms, reduce incentives to expand capacity or invest in new infrastructure, and further entrench control over critical infrastructure that producers rely on.”

Keyera, for its part, stated this week that it disagrees with the Commissioner of Competition’s assertions and characterisation of the transaction, adding that it intends to respond through the Competition Tribunal process.

Under this process, Keyera has 45 days to file its response to the Competition Bureau’s application, after which the Commissioner will have an opportunity to reply. The Competition Tribunal will then establish the schedule for the proceeding. Keyera noted that timelines may vary depending on the nature and complexity of matters before the tribunal, but added that proceedings can extend over “a number of months”.

The Globe and Mail noted that if the Competition Tribunal sides with the Competition Bureau, Keyera could be forced to unwind the transaction or sell off certain parts of the combined business. The newspaper cited the Competition Bureau as saying in an email that the Competition Tribunal had the power to order remedies even after a merger had closed. The Globe and Mail went on to cite Keyera’s president and CEO, Dean Setoguchi, as saying ahead of the company’s announcement this week that it would not have closed the deal if it did not have a high degree of conviction in its case.

How the challenge will play out thus remains to be seen, but in the meantime, Keyera has said that integration of Plains’ NGL assets into its own business is underway, as it seeks to “capture operational efficiencies and realise identified synergies”. The company has asserted that the acquisition strengthens its ability to deliver value to customers across the value chain.

For Plains, meanwhile, the sale of the Canadian assets completes its transformation into a pure play crude oil midstream company.