Sandell Urges Spectra Energy to Take Further Steps to Unlock Value

      Sandell Urges Spectra Energy to Take Further Steps to Unlock Value

Sees Intrinsic Value for Spectra Up To 40% Above Current Price

PR Newswire

NEW YORK, June 17, 2013

NEW YORK, June 17, 2013 /PRNewswire/ --In reaction to Spectra Energy's (NYSE:
SE) decision to drop its US Transmission assets into Spectra Energy Partners
(NYSE: SEP), Sandell Asset Management's Chief Executive Officer Thomas E.
Sandell sent the following letter to Greg Ebel, Chief Executive Officer of
Spectra Energy Corp.

The letter urges the firm to take further steps to unlock value including
reviewing strategic alternatives for SE's Canadian operations (Westcoast
Energy, Inc./WE) and DCP Midstream LLC (DCP). Mr. Sandell also urged the firm
to implement operational cost cuts across SE's entities that will reduce
inefficiencies and boost profitability.

Mr. Greg Ebel
Chief Executive Officer
Spectra Energy Corp
5400 Westheimer Court
Houston, TX 77056-5310
Cc: Mr. Pat Reddy, Chief Financial Officer; Board of Directors

Mr. Ebel,

We applaud you and the Board on the decision to drop Spectra's (SE) US
Transmission assets into Spectra Energy Partners (SEP), as we believe that
this long awaited move will marry the interests of SE and SEP, streamline
executive management, and convert SEP into a world-class MLP, thereby
garnering a valuation premium. As you have also pointed out, this transaction
will be materially beneficial to SEP's distribution and SE's dividend and
dividend growth profile, driving equity value at both entities.

However, as our shareholder group (the "Sandell Group") advised you last month
and discussed with you again last week, we believe that SE has an intrinsic
value of $48 per share, or more than 40% over its current price, which we
believe would be realized if you and the Board fully embrace and execute the
additional steps we have outlined, transitioning SE into a pure GP HoldCo
entity. Indeed, existing GP HoldCo entities such as Williams Companies, Inc.
(WMB), Kinder Morgan Inc. (KMI), and Oneok, Inc. (OKE) trade at a premium
valuation as strategic allocators of capital in the fast-moving, competitive
North American energy infrastructure landscape.

The remaining steps in our 'Plan to Unlock Shareholder Value' include the
following actions:

  a) Review strategic alternatives for SE's Canadian operations (Westcoast
  Energy, Inc./WE) including an IPO of WE. WE is currently 100% owned by SE
  and files fully audited financials on SEDAR in Canada. We believe an IPO of
  primary shares of WE would: i) highlight the premium valuations and lower
  cost of capital afforded to Canadian infrastructure companies; ii) simplify
  SE's corporate structure by allowing market participants to consistently
  value the Canadian businesses (as the value of SE's ownership of WE's
  shares) as opposed to the uneven valuation metrics employed currently; and
  iii) tie WE's executive compensation to WE share price performance, thereby
  promoting better strategic decision-making, efficiency and accountability.
  Based on our analysis, we do not believe there will be negative financial or
  strategic implications of pursuing this structure, as currently the
  strategic relationship between SE's US assets and WE is limited and SE will
  continue to control WE through its significant share ownership;

  b) Review strategic alternatives for DCP Midstream LLC (DCP), including
  a sale/dropdown or IPO. We believe there is both strategic and financial
  interest in SE's DCP stake as well as the potential to highlight the value
  of DCP's MLP-qualifying income through an IPO. While we recognize that any
  strategic move would require the approval of DCP's other 50% owner, Phillips
  66 (PSX), there are certain self-help actions that can be taken by SE to
  unlock DCP's hidden MLP valuation, namely a drop-down of its DCP stake into
  a related, SE-controlled MLP;

  c) Implement operational cost cuts across SE's entities that will reduce
  inefficiencies and boost profitability as management teams are more aligned
  with underlying operating asset performance and their related
  publicly-traded shares.

We presented these actions to you on May 16^th, and analyzed their financial
potential, in our White Paper, a copy of which can be found here:

http://www.sandellmgmt.com/news/Sandell_Group_Spectra_Analysis.pdf

Based on our discussions with other shareholders and a review of sell-side
research last week, we believe there is considerable support for the execution
of the balance of the Plan as we have laid out in our White Paper[1].

Moreover, we believe that the imperative for taking all the proactive steps in
our Plan is made stronger by SE's poor relative shareholder returns versus
peers, underperforming by 40%+ over the past three years, even after giving
effect to the announcement of last week. This performance is in stark
contrast to CEO compensation, which has consistently ranked at the top amongst
CEOs of the same peer group, demonstrating a complete lack of alignment
between executive compensation and shareholder returns. We believe it is both
this lack of alignment and the CEO's beneficial ownership of only 0.04% of
shares outstanding[2] that explains why SE has not engaged in all the actions
its peers have already taken – the glaring absence of financial motivation for
the CEO to do so.

As we have mentioned, we have also formed a shareholder group and are now one
of your largest shareholders. As the Sandell Group, we intend to continue to
promote change at SE for the benefit of all of its shareholders. We have a
strong track record of working collaboratively with management teams in your
industry to unlock shareholder value and we would like to do so in this case
as well. However, should you fail to promptly take all the steps to maximize
shareholder value as we have outlined in our Plan, we intend to pursue a
change to the composition of the Board at the next annual meeting.

Sincerely,

Thomas E. Sandell
Chief Executive Officer

[1] Some examples:

"We believe the company would do well to adopt a model more similar to WMB,
TRGP, OKE, where assets largely reside at the MLPs and the C-Corp adopts a
higher cash pay-out model to receive full valuation benefit." - Morgan Stanley

"Lastly, we can't help but wonder if the rationale/timing for this transaction
opens up the door for something similar to occur at DCP Midstream/DPM within
the SE structure." – Barclays

"We are curious if management plans to create a separate Canadian entity to
further its transformation to a pure-play GP." – BoAML

[2] Per March 21^st, 2013 proxy

SOURCE Sandell Asset Management

Website: http://www.sandellmgmt.com
Contact: Mr. Tom Sandell, Chief Executive Officer, Sandell Asset Management
Corp., +1-212-603-5700
 
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