Pembina Pipeline Corp (PPL.TO) will buy smaller rival Veresen Inc (VSN.TO) in a $9.7 billion stock-and-cash deal, the expanding Canadian company said on Monday, the latest deal in a sector that has been consolidating in the face of low commodity prices and high costs.

With prices slow to rebound from a two-year slump, pipeline companies have been under pressure to merge as they grapple with overcapacity and sliding tariffs. Investors have doubted the sector's ability to generate returns, with no major projects on the horizon beyond a few currently approved ones.

The combined company boasts a market capitalization of $22.7 billion, pushing third-place Pembina further ahead of smaller rivals and closer to the realm of giants $91.4 billion Enbridge Inc (ENB.TO) and $54.7 billion TransCanada Corp (TRP.TO).

AltaCorp Capital analyst Dirk Lever told BNN on Monday that the two companies are “a perfect fit.”

“Strategically it makes an awful lot of sense,” Lever said. “[Veresen] has got some terrific assets in it and when you look at what’s going on in the Basin: Bigger is better in the Basin. You’ve got very large players looking for infrastructure, key infrastructure. These are being provided by both Pembina and Veresen”

“All in all it’s like a perfect fit, these two companies coming together.”

The deal gives Pembina access to Veresen's natural gas pipelines and processing infrastructure, granting it a stronger position in the Western Canadian Sedimentary Basin, home to major gas plays such as the Montney.

Pembina Chief Executive Officer Michael Dilger said on a conference call that regarding Montney, "we get a do-over there" with the deal.

The offer represents a 22.5 per cent premium to Veresen's last close, the companies said. Pembina's shares were down about 4.1 per cent at $41.72. Veresen shares jumped more than 18 per cent to $18.12.

After the deal, Pembina will own about 5.8 billion cubic feet per day of gas processing infrastructure across Western Canada by 2018.

The combined company will have about 3 million barrels of oil equivalent per day of pipeline capacity.

Lever liked what the deal brings to the table for Pembina’s share price.

“If you were to draw a line between Calgary and Edmonton and go west of there, they effectively control the liquids-gathering systems for the most part in that area and it’s liquids that most people are after when they’re drilling,” he said.

“They have a stranglehold in the area.”

The deal is the latest in a wave of consolidation in the industry. In September, Enbridge announced a US$28 billion acquisition of Spectra Energy. That followed TransCanada's US$10 billion purchase of Columbia Pipeline Group in March last year.

Pembina said it would pay as much as about $1.52 billion in cash and 99.5 million in shares.

Lever doesn’t think the deal will draw the ire of the current U.S. administration, but hedged his bets in terms of the whims of the President.

“It’s not clear to me that Trump actually has any problem at all with the Canadian liquids business or the Canadian natural gas business, so I don’t think that he would get in the way,” Lever said.

“Although, I don’t read all his tweets … you never know.”

- with files from BNN