Canadian regulators imposed tougher conditions on Brookfield Infrastructure Partners LP’s hostile takeover bid for Inter Pipeline Ltd., making it harder for the Toronto-based company to derail a rival deal.

Brookfield must get investors to tender at least 55 per cent of Inter Pipeline’s shares for its bid to succeed, the Alberta Securities Commission ruled on Monday. That’s higher than the previous hurdle of 50 per cent plus one. Shares that Brookfield already owns can’t be counted in the number.

Brookfield must also disclose new details about its use of derivatives called total return swaps. Brookfield used the swaps to acquire a nearly 20 per cent economic interest in Calgary-based Inter Pipeline, without having to disclose its stake in the company before it launched a hostile bid in February.

The decision by the Alberta regulator raises a new obstacle for Brookfield to beat a US$6.9 billion, all-share offer by Pembina Pipeline Corp. that was unveiled June 1. Pembina and Brookfield have been tussling for weeks over Inter Pipeline, a midstream energy company that owns pipelines in western Canada’s oil region, liquid storage terminals in Europe and a large petrochemical complex in Alberta that’s under construction.

Pembina NGL pipeline warning signs outside the Inter Pipeline Heartland Petrochemical
Complex under construction in Strathcona County, Alberta, Canada

Pembina NGL pipeline warning signs outside the Inter Pipeline Heartland Petrochemical Complex under construction in Strathcona County, Alberta, Canada, on Wednesday, June 2, 2021. Brookfield Infrastructure Partners LP raised its hostile offer for Inter Pipeline Ltd. to CUS$8.4 billion (US$6.9 billion) as it sought to break up the company's takeover by Pembina Pipeline Corp. announced a day earlier.

The ruling throws into question the practice of using derivatives to build an economic position in companies without needing to disclose. Prior to making its first offer, Brookfield acquired about 9.8 per cent of Inter Pipeline’s shares -- just below the 10 per cent level that would have required disclosure under Canadian rules. The use of swaps allowed Brookfield to raise the size of its economic stake to almost 20 per cent. In Monday’s oral ruling, the Alberta regulator called the tactic “abusive.”

Read more: Brookfield Revises Hostile Offer in Inter Pipeline Battle

Inter Pipeline’s board rejected Brookfield’s advances before securing a friendly offer from Pembina for CUS$19.45 a share. Brookfield raised its offer within days and on June 18 revised it to give Inter Pipeline shareholders the option of CUS$19.50 in cash or about CUS$20 in stock.

Brookfield is seeking to win over shareholders before Pembina’s offer goes to a vote on July 29.

Inter Pipeline Chair Margaret McKenzie said in a statement: “With the ASC’s favorable decision, our shareholders can proceed to vote for the Pembina arrangement without the risk that Brookfield will be permitted to further increase its aggregate share and swap position to frustrate the ability of shareholders to choose.”

Brookfield didn’t immediately respond to an email seeking comment. Its own challenge to some of Inter Pipeline’s defensive tactics, including a shareholder rights plan, was rejected by securities commission.

The battle for the Canadian midstream company follows years of failed attempts to build major projects like TC Energy Corp.’s Keystone XL and Enbridge Inc.’s Energy East, potentially making existing pipelines more valuable.