Energy sector and master limited partnership-related exchange traded funds are rallying Tuesday after Canada’s Enbridge (NYSE: ENB) announced it would acquire Spectra Energy (NYSE: SE) for $28 billion to establish the largest infrastructure company in North America.
Enbridge said it would buy Spectra Energy in an all-stock deal valued at about $28 billion, Reuters reports.
The deal is expected to go through without a hitch. Bruce McDonald, an antitrust expert with Jones Day law firm, said there is no serious antitrust problems as the companies’ networks have “limited overlap.”
Enbridge’s pipelines send Canadian oil sands to refiners on the U.S. Gulf Coast, whereas Spectra’s network transfers natural gas to the U.S. East Coast.
ENB shares rose 7.0% Tuesday while SE shares surged 15.9%.
Meanwhile, ETFs that track master limited partnerships and energy infrastructure-focused companies rallied on the acquisition news.
Leading the charge on Tuesday, the Tortoise North American Pipeline Fund (NYSEArca: TPYP) gained 2.7%, Global X MLP & Energy Infrastructure ETF (NYSEArca: MLPX) rose 3.3% and Alerian Energy Infrastructure ETF (NYSEArca: ENFR) added 2.0%
These energy infrastructure-related ETFs are a type of hybrid MLP ETFs.
Most MLP ETFs are structured as C corporations. Since MLP ETFs are structured as a C corp., these corporations are also required to pay corporate income tax on distributions before the distributions are passed through to investors – MLP ETFs are required to pay corporate taxes or a 35% federal rate on returns.