<strong>Bay</strong> <strong>Street</strong> in Toronto, Ontario is seen here Thursday Feb. 9, 2012.Tim Fraser/The Globe and Mail
Enbridge Inc.'s big $500-million equity financing has ruffled feathers on Bay Street, prompting the smaller syndicate members who participated in the underwriting to back out of the deal.
Late Thursday, Enbridge launched a $500-million bought deal co-led by RBC Dominion Securities and Scotia Capital, who each agreed to underwrite 31 per cent of the offering, leaving the rest for the other syndicate members.
Overnight, most investment banks sold their portion of the deal but on Friday morning the entire financing hit the rocks. According to several people familiar with the transaction, RBC attempted to reduce the offering price following weak U.S. and Canadian jobs numbers, fearing that investors would send stock markets tumbling. (The original offer was aggressively priced at just a 0.6 per cent discount to Thursday's close.) However, RBC did so without other investment banks in the syndicate knowing.
On top of that, Enbridge's shares have been on a huge run over the past six months, climbing to $47.49 on April 2, the company's highest ever stock price, and some investors think the stock is overvalued.
The deal was re-priced to $45.25 per share, down from $46.11, but not before most of the syndicate members walked away because they felt the lead underwriters were working behind their backs.
RBC's move made for a heated conference call among members of the underwriting syndicate.
RBC declined to comment.
Several investors said Enbridge saw weak demand for the offering. Jennifer Stevenson, a portfolio manager with GCIC Ltd. who runs the Dynamic Energy Income Fund, called it "an aggressively priced deal in a really weak [market]. It was an overnight deal into U.S. job [numbers] Friday, which turned out to be crap."
"So it's just a really weak environment and the stock's going to trade off anyway," she said, adding that Enbridge was better off just lowering the offer price to give investors a break.
She also called Enbridge "notorious for pricing their deals tight."
By Friday afternoon the entire deal was sold, according to someone familiar with the transaction, and the shares closed at $45.32, higher than the revised price of $45.25.
Another portfolio manager said the failed offering may suggest that investors are growing nervous about Enbridge's strong share valuation. The stock was up 25 per cent from its November low before the offering was announced.
Despite the controversy, the amount of money that flows to Enbridge's coffers remains the same, even though the deal was re-priced. However, the remaining underwriters – RBC and Scotia – will earn smaller fee percentages.
Even though some of the underwriters are fuming, investors don't appear to be so flummoxed. Ms. Stevenson said the re-pricing was more tied to Friday's markets, and that the company is unlikely to face much trouble raising future money.
"We love Enbridge," she said.
With files from reporters Nathan Vanderklippe, Carrie Tait and Boyd Erman
(Tim Kiladze is a Globe and Mail Reporter.)
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Tim Kiladze