Energy Transfer Equity LP buying Southern Union for $7.9 billion

HOUSTON, Texas - Energy Transfer Equity, L.P. (NYSE: ETE) and Southern Union Co. (NYSE: SUG) on June 16 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.

Under terms of the agreement, which has been unanimously approved by the boards of both companies, stockholders of SUG will exchange their common shares for newly issued Series B Units of ETE with a value of $33 per share, or approximately $4.2 billion. The implied value of the Series B Units represents an approximate 17 percent premium to the closing price of SUG common stock on June 15. 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 percent, 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 subsidiaries, Energy Transfer Partners, L.P. (NYSE: ETP) and Regency Energy Partners LP (NASDAQ: RGNC).

The combined footprint of ETE, together with ETP, RGNC and SUG, will have throughput of more than 30 billion cubic feet a day of natural gas along nearly 45,000 miles of pipeline. That's nearly half of the natural gas produced in the U.S. and a third larger than 19 billion cubic feet a day moved by El Paso Pipeline Partners LP (EPB), believed to be the current largest natural gas pipeline company by volume transported.

The 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.

"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. "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."

ETE has the option to redeem the Series B Units at any time after the closing of the transaction. If such redemption occurs during the first year after the closing of the transaction, each Series B unitholder will have the option to receive either $33.00 in cash per Series B Unit or an equally valued number of ETP common units. If such redemption occurs after the first year after closing of this transaction, each Series B unitholder will have the option to receive either $33.00 in cash or an equally valued number of ETP common units, or ETE common units at a fixed exchange ratio of 0.770x. After the first anniversary of closing, the Series B Units will be convertible at any time into ETE common units at a fixed exchange ratio of 0.770x at the option of each Series B unitholder.

ETE has identified approximately $100 million in commercial and operational synergies and has identified an additional $25 million in one-time savings.

Per the terms of the merger agreement, at closing, SUG will become a wholly-owned subsidiary of ETE. ETE currently owns the general partner and 100 percent of the incentive distribution rights (IDRs) of ETP and approximately 50.2 million ETP limited partner units. ETE also owns the general partner and 100 percent of the IDRs of RGNC and approximately 26.3 million RGNC limited partner units.

The transaction is expected to close in the first quarter of 2012, subject to SUG stockholder approval and regulatory approvals. No ETE unitholder approval is required for the closing of this transaction.