Energy Transfer Equity and Southern Union File Application with Missouri Public Service Commission as Step toward Completion of Merger
Press Release Source: Energy Transfer Equity, L.P. On Wednesday July 13, 2011, 6:41 pm
DALLAS & HOUSTON--(BUSINESS WIRE)-- Energy Transfer Equity, L.P. (NYSE:ETE - News) and Southern Union Company (NYSE:SUG - News) today announced they have filed a joint application with the Public Service Commission of the State of Missouri (Commission), requesting an order from the Commission authorizing SUG to take certain actions to allow ETE to acquire the equity interests of SUG, including its subsidiaries. This request pertains to the Amended and Restated Agreement and Plan of Merger dated July 4, 2011 by and between ETE and SUG, and upon approval from the Commission, will represent another positive step toward completion of the merger that is scheduled to close in the first quarter of 2012.
Energy Transfer Equity, L.P. (NYSE:ETE - News) is a publicly traded partnership, which owns the general partner and 100 percent of the incentive distribution rights (IDRs) of Energy Transfer Partners, L.P. (ETP) and approximately 50.2 million ETP limited partner units; and owns the general partner and 100 percent of the IDRs of Regency Energy Partners LP (RGNC) and approximately 26.3 million RGNC limited partner units. For more information, visit the Energy Transfer Equity, L.P. web site at www.energytransfer.com.
Southern Union Company (NYSE:SUG - News), headquartered in Houston, is one of the nation’s leading diversified natural gas companies, engaged primarily in the transportation, storage, gathering, processing and distribution of natural gas. The company owns and operates one of the nation’s largest natural gas pipeline systems with more than 20,000 miles of gathering and transportation pipelines and one of North America’s largest liquefied natural gas import terminals, along with serving more than half a million natural gas end-user customers in Missouri and Massachusetts. For further information, visit www.sug.com.
"Their point is that if you end up with ETE shares, aside from the tax issues, you are holding something of greater value that if you end up with $44 (or whatever is was) in cash and you have to go hunting for something to do with that cash that will generate value for your institution/investors."
Except that (also aside from tax issues) if the SUG holders get $44, they can choose to use it to buy ETE units for $43.xx if they so choose. Or they could buy something else instead. They get a choice with cash, instead of having to take ETE units.
Whatever, it's starting to look like ETE will win this battle. However note that the latest press releases about the improved offer removes all references to the term "accretive". They are going to be paying for this acquisition for a long time.
Yes, I put the rationale for the Fair Value in another thread.
Well the article was written for the use of their subscribers, not as a general thesis for all of Wall Street, and the Fair Value (distinct from "price target") they give ETE is $57.
In that sense it's very sensible. Their point is that if you end up with ETE shares, aside from the tax issues, you are holding something of greater value that if you end up with $44 (or whatever is was) in cash and you have to go hunting for something to do with that cash that will generate value for your institution/investors.
In that context is makes perfect sense if you accept their view of ETE.
If you want cash in your pocket to pay the rent you might view it differently.
We agree M* valuation was worthless.
I stand by my comment that SUG holders will be swayed - ie. make a decision - partially based on the tax consequences. One institutional holder suggested they would happily take cash to reinvest because they have LGCG losses to offset, while another said a tax free transactions would always be preferential to its holders.
SUG holders are no longer in the 70% institutional area as large sales reported, but still huge. They are the decision makers as the SUG board needs shareholder approval and am sure they have polled the big guys.
Was suggested privately to me that SUG will seek some small bone from ETE and then vote to accept an amended ETE offer. Personally I do not care are the buyout $$ vs. the SUG merger are about equal in creating value for the next two years. ETE would be ahead is the following years but that is a long time to wait.
In a note published earlier this morning, we argued that Energy Transfer's ETE latest bid is worth $46 per share to Southern Union SUG, above the $40 cash offer for up to 60% of Southern Union's shares, because the remainder of the offer will be settled with Energy Transfer Equity stock, which we value at $57 per unit. Williams' WMB new all-cash offer of $44 per share, which we acknowledged the possibility of, is just below this valuation. At this time we still expect Energy Transfer to win out, as the Williams bid is not clearly superior, and we believe that antitrust issues may complicate a Williams-Southern Union tieup. We recently raised our fair value estimate for Southern Union to $44 per share based on an 80% chance of an ETE-SUG merger, worth $46 per share by our math, a 10% chance of a WMB-SUG tieup at $39 per share, and a 10% chance Southern Union remains independent, in which case we think the stand-alone entity is only worth $33. Williams' raised bid does not alter our expected value of Southern Union. If Energy Transfer raises its bid again, we will reconsider our fair value estimates, but at this time we see little reason to change
Its hard to believe that ETE is worth $57/share when the market values at so much less. I suspect that valuation would be more realistic if either of their MLPs were vibrant enough to more aggressively raise their quarterly distributions. However, neither can in the immediate future while many other MLPs with large organic capex are so one has to wonder why ETP and RGNC are unable to stay with the peer group. NGLS is raising at 8% annual rate in the G&P space while RGNC still deals with its higher debt ratios by freezing distributions. Any number of pipeline MLPs are raising 5-7%/year while ETP is just plain stuck and has been stuck for 2 years.
So I think the idea that ETE's offer is superior based upon some arbitrary high valuation for ETE makes no sense at all and I do not believe SUG's board could consider that kind of nonsense in evaluating WMB's bid.
MSFT is worth a lot more than its present stock price but as long as markets discount that price then the price for MSFT is the price, no more, no less.