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Energy Transfer Increases Takeover Offer for Southern Union

Energy Transfer Equity LP increased its bid to buy pipeline company Southern Union Co., agreeing to pay $5.1 billion in cash or units in an attempt to thwart a rival offer by Williams Cos.

Holders of Houston-based Southern Union can exchange their shares for $40 in cash or 0.903 common units of Energy Transfer, according to a joint statement today. The offer, accepted by the boards of both companies, compares with Energy Transfer’s all-stock agreement last month of $33 a share. The latest offer includes about $3.7 billion in acquired debt.

Williams offered to buy Southern Union for $39 a share in cash, or $4.86 billion, on June 24. Williams said its offer was superior because it wasn’t contingent upon securing financing. Energy Transfer, based in Dallas, said today it had secured $3.3 billion in committed financing from Credit Suisse AG.

“We wouldn’t be surprised to see Williams match or raise with all-cash,” analysts for Tudor Pickering Holt & Co. LLC, based in Houston, said today in a note to clients.

Southern Union rose above the Energy Transfer offer price, gaining $1.70, or 4.2 percent, to $42.07 at 4:02 p.m. in New York Stock Exchange composite trading. Energy Transfer rose 31 cents to $44.99. Williams fell 7 cents to $30.68.

‘Evaluating Our Options’

Williams is “evaluating our options” in the wake of the higher bid, Jeff Pounds, a spokesman for the Tulsa, Oklahoma-based company, said today in a telephone interview.

It’s not clear how much higher Energy Transfer is willing to bid, said Dan Spears, who helps manage $1.5 billion at Swank Capital LLC in Dallas, including stakes in Energy Transfer and its affiliates. “Without further study, you’re approaching levels of full value.”

As much as 60 percent of Southern Union’s shares can be sold for the $40-a-share Energy Transfer cash offer, according to the agreement. Exchanging the shares for units in Energy Transfer would value them at $40.34 each, based on the closing share price on July 1.

Energy Transfer Chairman Kelcy Warren declined to say whether the partnership would top a higher bid by Williams. “It’s not our style to get into true auctions,” Warren said in an interview. “We know these assets fit us better by far than any other party.”

‘Negative Attention’

Energy Transfer and Southern Union agreed to end a consulting and non-competition agreement that would’ve paid Southern Union Chairman and Chief Executive Officer George Lindemann and President Eric Herschmann $10 million each a year for the next five years.

The packages drew “negative attention,” Energy Transfer’s Warren said today on a conference call with analysts.

Adding Southern Union will almost double Energy Transfer’s natural-gas pipeline network with expansion into eastern U.S. markets. The company would have the capacity to ship 30.7 billion cubic feet a day, equivalent to a third of daily U.S. gas consumption, including holdings by subsidiaries Energy Transfer Partners and Regency Energy Partners.

The acquisition would be the largest purchase of a pipeline company this year, according to data compiled by Bloomberg. The new agreement raised the termination fee payable by Southern Union to Energy Transfer should it accept a higher offer to as much as $162.5 million from $135 million in the earlier agreement.

Southern Union or Energy Transfer may also be obligated to pay as much as $50 million in costs if the agreement is terminated, up from $12.5 million in the original offer.

Southern Union owns pipelines that bring gas from Texas and the Gulf Coast to markets in Florida and the Midwest. It owns a Lake Charles, Louisiana, liquefied natural gas terminal that applied for export permission in May.

Credit Suisse advised Energy Transfer. Evercore Partners Inc. and Goldman Sachs Group Inc. advised the special committee of Southern Union’s board.

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