Southern Union to Unite with ETE - Analyst Blog
June 17 2011 - 10:45AM
Zacks
Southern Union Company (SUG) has entered into a
definite agreement with Energy Transfer Equity,
L.P. (ETE) under which the latter has agreed to buy
Southern Union for $7.9 billion, including $3.7 billion of existing
debt.
Per the agreement terms, stockholders of Southern Union will
exchange their common shares for newly issued Series B Units of ETE
with a value of $33.00 per share, or approximately $4.2 billion.
This represents approximately 17.0% premium to the closing price of
Southern Union common stock as on June 15, 2011. The Series B Units
will be registered and are expected to be listed for trading on the
NYSE and will be entitled to an annualized distribution yield of
not less than 8.25%, payable quarterly, based on the implied value
of $33.00 per Series B Unit.
The transaction is expected to close in the first quarter of
2012, subject to Southern Union stockholder approval and regulatory
approvals. No Southern Union unit holder approval is required for
the closing of this transaction. The terms of the agreement
has unanimously been approved by the boards of directors of both
companies.
Post acquisition, Energy Transfer Equity will own attractive
assets of Southern Unionalong with the assets owned and operated by
its two master limited partnership (MLP) subsidiaries,
Energy Transfer Partners, L.P. (ETP) and
Regency Energy Partners LP (RGNC). Collectively,
both Southern Union and Energy Transfer Equity will include more
than 44,000 miles of natural gas pipelines and approximately 30.7
billion cubic feet per day of natural gas transportation capacity.
This would make ETE one of the largest natural gas infrastructure
players in the U.S.
Energy Transfer Equity currently owns 100% of the incentive
distribution rights (IDRs) of ETP and approximately 50.2 million
ETP limited partner units. It owns 100% of the IDRs of RGNC and
approximately 26.3 million RGNC limited partner units. At closing,
per the terms of the merger agreement, Southern Union will become a
wholly owned subsidiary of ETE.
The transaction will be immediately accretive to ETE’s
distributable cash flow and create significant organic growth
opportunities in strategic geographic locations across the U.S. as
well as offer potential affiliate joint ventures. Energy Transfer
Equity will benefit by approximately $100 million in commercial and
operational synergies and by an additional $25 million in one-time
savings from the said transaction.
The amalgamation will create a diversified partnership that will
be well positioned to serve its existing customers and compete for
new ones. This transaction will likely result in multiple
opportunities for ETP and RGNC and will further enhance value for
all parties within the Energy Transfer group of companies.
Southern Union Company owns one of the largest interstate
pipeline networks in the U.S. and one of the largest LNG import
terminals in North America. Management’s focus on the regulated
asset base will provide the company with low-risk growth. The
company is also well positioned in the Permian Basin to focus on
further natural gas midstream expansion programs.
However, valuation continues to be restricted by the company’s
overt dependence on outside funds to sustain its expansion
programs, as well as seasonality in its pipeline business and
re-contracting uncertainty for its percent of proceed contracts.
Thus, in the absence of further positive triggers, we feel the
company is adequately valued, leaving little room for upside in the
near term. The company presently retains a short-term Zacks #3 Rank
(Hold) that corresponds with our long-term Neutral recommendation
on the stock.
ENERGY TRAN EQT (ETE): Free Stock Analysis Report
ENERGY TRAN PTR (ETP): Free Stock Analysis Report
REGENCY ENERGY (RGNC): Free Stock Analysis Report
SOUTHN UNION CO (SUG): Free Stock Analysis Report
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