Williams In Southern Union Push - Analyst Blog
August 17 2011 - 7:30AM
Zacks
The race for Southern Union Company (SUG) has
just become hotter with Williams Companies Inc.
(WMB) reiterating its keenness in acquiring the company for $44.00
per share in cash, cumulating to a total of $5.5 billion in
cash.
The deal was first broached on July 14, 2011. Williams conveyed
its proposal via a letter to the Special Committee of Southern
Union's Board of Directors. Williams is pushing ahead for the deal
since on July 29, 2011, Energy Transfer Equity
L.P. (ETE) and Southern Union had announced the expiration
of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act for the consummation of the proposed merger.
Southern Union had earlier agreed to be acquired by Energy
Transfer. However, after Williams entered the fray, the deal was
renegotiated on July 19, 2011. Per the new agreement Southern Union
shareholders can elect to exchange their common shares for a mix of
cash and Energy Transfer units. The cash component was proposed at
60% and the rest in the form of Energy Transfer units.
Williams opines its all-cash proposal of $44.00 per share
represents a premium of 4% over the implied value of Energy
Transfer’s offer of $42.32 per share. Williams calculation is based
on the closing price of Energy Transfer units on August 16, 2011.
Also last week Energy Transfer units have traded as low as $33.21
indicating significant loss of value for the deal.
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.
Williams plans to utilize Southern Union’s network of pipelines
to connect customers in Florida to new sources of natural gas in
the Permian Basin and Granite Wash field in Texas and Oklahoma.
Should the deal fructify, Williams will gain a stronger foothold in
the North American region and get access to the rich shale basins
and end-use markets.
The icing on the cake for Energy Transfer would have been the
attractive assets of Southern Union. These would have been owned
and operated by its two master limited partnership (MLP)
subsidiaries, Energy Transfer Partners, L.P. (ETP)
and Regency Energy Partners LP (RGNC). Whosoever
clinches the deal will become one of the largest natural gas
infrastructure players in the U.S. The recent push to acquire
Southern Union has led us to retain a short-term Zacks #2 Rank
(Buy) on the stock.
However, long-term 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 proceed contracts. Thus, in
the absence of further positive triggers, we maintain our long-term
Neutral recommendation on the stock.
ENERGY TRAN EQT (ETE): Free Stock Analysis Report
ENERGY TRAN PTR (ETP): Free Stock Analysis Report
SOUTHN UNION CO (SUG): Free Stock Analysis Report
WILLIAMS COS (WMB): Free Stock Analysis Report
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