Spectra Energy Merger With Enbridge Seen Favorably By Argus

Argus is positive on Spectra Energy Corp. SE following its deal to merge with Enbridge Inc (USA) ENB in a stock-for-stock deal worth $28 billion as it would create the "the largest energy infrastructure company in North America."

The consideration to receive is valued at $40.33 per SE share, based on the closing price of Enbridge on September 2.

The brokerage cut Spectra Energy to Hold as its share price is currently higher than the offer price, but it views the merger favorably.

"Its gas pipeline systems generate fixed-fee cash flow from long-term contracts and provide stable cash generation. The company continues to have exposure to commodity price fluctuations and the effect of a lower Canadian dollar," analyst David Coleman wrote in a note.

"Spectra Energy continues to focus on increasing its fee-based natural gas business, has reduced maintenance capital expenditures and obtained favorable interest rate refinancing," Coleman continued.

The analyst highlighted the strong exposure of Spectra Energy's natural gas transportation business to the Marcellus shale and said it's well positioned to benefit from increasing demand for natural gas.

"We think the company's expansion opportunities through the end of the decade will also support above-average dividend growth. The recent awarding of a Mexican pipeline project signals possible resumption of capital spending in the energy sector," Coleman added.

At time of writing, shares of Spectra Energy were down 0.85 percent to $41.95.