USA: Energy Transfer Buying Southern Union for USD 4.2 Billion

Energy Transfer Equity, L.P. and Southern Union Company today announced that the two companies have entered into a definitive merger agreement whereby ETE will acquire Southern Union for $7.9 billion, including approximately $3.7 billion of existing SUG debt, creating the premier group of integrated midstream companies in the United States natural gas industry.

Under terms of the agreement, which has been unanimously approved by the Boards of Directors of both companies, stockholders of SUG 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. The implied value of the Series B Units represents an approximate 17% premium to the closing price of SUG common stock on June 15, 2011. The Series B Units, which will be registered and are expected to be listed for trading on the NYSE, 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.

ETE’s acquisition of Houston-based SUG, one of the nation’s leading diversified natural gas companies, will provide ETE with direct ownership of attractive assets that are complementary to the assets owned and operated by ETE’s two master limited partnership (MLP) subsidiaries, Energy Transfer Partners, L.P. and Regency Energy Partners LP. The combined footprint of ETE (together with ETP and RGNC) and SUG 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, making ETE among the largest natural gas infrastructure players in the U.S. ETE’s acquisition of SUG will result in a more diversified partnership better able to serve its existing customers and compete for new ones. This transaction is expected to be immediately accretive to ETE’s distributable cash flow and creates significant additional organic growth opportunities in strategic geographic locations across the U.S. as well as potential affiliate joint ventures. This transaction also provides for the possibility of multiple asset dropdown opportunities to ETP and RGNC that should further enhance value for all parties within the Energy Transfer group of companies.

“The acquisition of Southern Union will give ETE a larger, more competitive interstate and midstream platform and will add significant demand-driven pipeline assets to the Energy Transfer portfolio,” said Kelcy Warren, ETE’s Chairman of the Board of Directors. “Furthermore, the acquisition of Southern Union will significantly enhance and diversify ETE’s cash flow profile, making this transaction accretive to ETE’s unitholders while preserving our commitment to maintaining investment grade credit metrics at ETP and SUG and achieving investment grade status at Regency.”

George L. Lindemann, Chairman and CEO of SUG, said, “We are thrilled with the opportunities the transaction with Energy Transfer creates. Under our management, we have grown Southern Union from a value of approximately $125 million to approximately $8 billion. The combination with ETE is the right next step for the company’s growth and delivers significant value for our shareholders. I’ve known Kelcy for many years and admire his management style and the ETE portfolio he has built. We have a shared vision for our companies. Our businesses and networks are highly complementary and together will provide a broader range of services and product offerings to existing and future customers.”

Eric D. Herschmann, Vice Chairman, President and COO of SUG, added, “Southern Union stockholders will receive an attractive premium, an enhanced income stream, and the benefits of owning a company with a larger asset base. We are excited about merging these two highly successful operations and are confident in the potential of the combined entity.”

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Source: Southern Union Company, June 16, 2011;