Canadian pipeline operator Enbridge (ENB) - Get Report said Tuesday it agreed to buy Houston-based Spectra Energy (SE) - Get Report for $28 billion in stock, creating the largest energy infrastructure provider in North America.

Spectra stockholders will get 0.984 of a share of Enbridge for each of their shares valued at $40.33 per share, an 11.5% premium over Spectra's closing price this past Friday. The deal gives the combination an enterprise value of C$165 billion ($127 billion), sales of $31 billion and Ebit of $4.4 billion.

Enbridge said the deal increases the company's scale, asset diversity and financial flexibility and gives it a $57 billion portfolio of projects with $20 billion in progress. It also expects the deal will lead to a 15% annualized dividend increase next year and annual 10% to 12% percent dividend growth after that through 2024.

Enbridge CEO and president Al Monaco, who will keep his roles, said in a statement that the company has been focused on identifying opportunities for the past two years that would extend and diversify its asset base and sources of growth beyond 2019. "We are accomplishing that goal by combining with the premier natural gas infrastructure company to create a true North American and global energy infrastructure leader," he said.

Spectra CEO and president Greg Ebel (pictured), who will become non-executive chairman once the deal closes, said the combination creates what he thinks is the best, most diversified energy infrastructure company in North America, if not the world. "The merged company will have what we believe is the finest platform for serving customers in every region of North America and providing investors with the opportunity for superior shareholder returns," he said.

Enbridge expects the deal to lead to $415 million in annual cost synergies, most of which will be achieved in the latter part of 2018, and an additional $200 million in tax savings in 2019 and beyond.

Enbridge said it expects the deal to be neutral to its 12% to 14% secured available cash flow from operations per share guidance through the 2014-2019 time period. To provide additional financial flexibility, the company said it expects to sell $2 billion in non-core assets over the next 12 months, although, on a conference call with analysts and investors management wouldn't specify which assets.

Enbridge said it expects Spectra Energy Partners  SEP and Enbridge Energy Partners (EEP) will remain publicly traded entities, which would leave the door open for potential gas pipeline drop downs from Enbridge to Spectra Energy Partners, Tudor, Pickering, Holt & Co. Securities said in a note.

The analysts said the deal creates a $120 billion "midstream monster" with the offer coming in just above their price target of $40 per share, giving value for its existing asset base as well as projects in the works.

"[The] deal balances out ENB's liquids-heavy portfolio, allowing the joint company to extend 10% to 12% annual dividend growth target through 2024 as [the] company looks to complete targeted $57 billion backlog in coming years," they said.

Jefferies analyst Christopher Sighinolfi said the deal is the second major transaction between a U.S. pipeline company and a Canadian energy infrastructure company this year. In July TransCanada Corp. closed its purchase of Columbia Pipeline Group Inc. for $25.50 per share in cash, a 32% premium over its 30-day volume weighted average price. "This deal also marks a continuation of a M&A and simplification cycle ... as competition for growth opportunities, operational cost-discipline and cost-of-capital benefits intensify," he said.

The deal also comes after Energy Transfer Equity (ETE) failed $20 billion purchase of pipeline company Williams (WMB) - Get Report earlier this year due to the drop in commodity prices and worries over the deal's tax treatment. Williams is now in the middle of a proxy fight with one of its investors, Keith Meister of Corvex Management.

The Spectra transaction is expected to close in the first quarter of next year if it clears shareholders and Canadian and U.S. regulatory approval.

Enbridge shareholders will own 57% of the combined company and Spectra stockholders will hold 43%. Enbridge will have 13 board members, with eight from Enbridge (including Monaco) and five from Spectra (including Ebel). Guy Jarvis will be president of liquids pipelines and major projects, Bill Yardley will be president of gas transmission and midstream and John Whelan will be executive vice president and CFO.

The company will continue to be based in Calgary, Alberta, with an office in Houston for its gas pipeline business, Edmonton, Alberta for its liquids pipeline business and Ontario for its gas distribution business.

Credit Suisse Securities (Canada) Inc.'s Tom Greenberg, Greg Weinberger, Brian McCabe, Kevin Adam, Michael Comisarow and Asheley Kinsey advised Enbridge's board. RBC Capital Markets' Derek Neldner, Trevor Gardner, Peter Buzzi, Corey Fraiberg, Ali Akbar, Douglas Pearce, Jonathan Kaufman, Chris Wilkinson and Drew Horn also advised Enbridge and delivered an opinion to its board. Enbridge received outside legal counsel from Sullivan & Cromwell LLP's Joseph Frumkin and George Sampas and McCarthy Tétrault LLP's John Osler and Wilson Acton. Enbridge's in house counsel included David Robottom and Jim Bell.

BMO Capital Markets' Daniel Barclay and Citi's Claudio Sauer and Michael Jamieson assisted Spectra's board. Wachtell, Lipton, Rosen & Katz's Daniel Neff, David Katz, Gregory Ostling, Sebastian Fein, Viktor Sapezhnikov, Amanda Stein, Nelson O. Fitts, Katharine R. Haigh, Adam Shapiro, Rohit Nafday, Eiko Stange, David Sturgeon, Eric Rosof and Austin Witt and Goodmans LLP's Carrie Smit provided outside legal advice to Spectra and Skadden, Arps, Slate, Meagher & Flom LLP's Cliff Gross, Moshe Spinowitz and Eric Sensenbrenner offered tax counsel. Spectra's in house counsel was Reginald Hedgebeth.