Energy Transfer, Southern Union Reach $5.7B Deal

HOUSTON (Dow Jones Newswires), July 19, 2011

Southern Union agreed to a sweetened $5.7 billion cash-and-stock buyout offer from Energy Transfer Equity, spurning a bid from rival suitor Williams Cos.

The agreement is the latest maneuver in a bidding war that has added more than a billion dollars to Energy Transfer's opening $4.2 billion bid for Southern in mid-June. Energy Transfer and Williams have competed to merge their pipeline assets with those of Southern, with the winner expected to become the largest natural gas pipeline operator in the country.

Williams, whose most recent bid was for $5.6 billion on July 14, said it was "evaluating its options."

Enterprise and Williams have hoped that combining their position in prolific natural gas production areas with Southern's access to markets will make them better able to transport natural gas through what is becoming an increasingly congested system. The glut has been brought about by new drilling technology, which in the past decade has unlocked an unprecedented natural gas bounty from shale formations across the U.S.

The combined company will have capacity to move more than 30 billion cubic feet a day of natural gas--nearly half of the natural gas produced in the U.S.--along nearly 45,000 miles of pipeline.

Southern shareholders may have been swayed by Energy Transfer's use of stock in the deal, which would offer tax benefits and dividends, analysts have said. Energy Transfer's assets in Texas might also fit easier with Southern's position in markets in the Midwest and Florida, said Morningstar analyst Avi Feinberg.

"I think Energy Transfer has the best natural fit with Southern Union," Feinberg said in an interview.

Under Energy Transfer's latest offer, Southern Union holders can elect to receive $44.25 in cash or one Energy Transfer Equity common unit, worth $44.03 as of Monday's close. The total value of the deal, including debt assumption, is about $9.4 billion.

Williams may find going above $44 a share problematic, as the amount could be more than Southern might be worth to shareholders, BMO Capital Markets analysts have said.

Energy Transfer on Tuesday also reached an amended agreement to sell Southern Union's 50% interest in Citrus Corp., owner of the Florida Gas Transmission pipeline system, to Energy Transfer Partners LP for $2 billion. Regulators are requiring Energy Transfer Equity to sell the stake when the Southern Union acquisition closes.

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