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Energy Transfer Agrees to Buy Southern for $5.7 Billion

Energy Transfer Equity LP agreed to buy Southern Union Co. for about $5.7 billion, its second effort to outbid Williams Cos. and complete the biggest purchase of a pipeline operator this year.

The proposal values the company at about $44.25 a share, redeemable in cash or stock, according to a statement today from Dallas-based Energy Transfer and Southern Union. It’s a 57 percent premium over Southern Union’s closing price on June 15, the day before the companies first announced the takeover.

“Our ability to be creative with our structure has improved the tax efficiency, therefore allowing us to increase our price,” Energy Transfer Chairman Kelcy Warren said in the statement.

Williams and Energy Transfer are vying for Houston-based Southern Union’s 15,000 miles (24,000 kilometers) of natural-gas pipelines, which can connect new fields in Texas and Oklahoma to markets in the U.S. Midwest and Florida.

Southern Union rose above the Energy Transfer offer price, gaining $1.01, or 2.3 percent, to $44.34 at 4:05 p.m. in New York Stock Exchange composite trading. Energy Transfer fell 50 cents, or 1.1 percent, to $43.53. Williams rose 60 cents, or 2 percent, to $30.64.

Energy Transfer is “barely trumping” Williams’s offer, Standard & Poor’s said in a statement.

Full Value

“We continue to see some uncertainty over the final outcome as Williams’s all-cash offer is safer and not subject to declines in the stock market,” the ratings company said.

The bidding is getting close to the full value of Southern Union’s assets, said John E. Olson, who manages about $20 million at Pool Capital Partners LLC in Houston and doesn’t own the stocks.

“Pickings are getting a little slim here, as they should,” he said. “They’re pricing in everything but the squeal.”

Williams is “evaluating our options,” Jeff Pounds, a spokesman for the Tulsa, Oklahoma-based company, said in an e-mail today.

Energy Transfer first agreed to buy Southern Union in an all-stock transaction valued at $33 a share. Williams countered on June 23 at $39 a share in cash. On July 5, Energy Transfer boosted its offer and Williams responded on July 14 by bidding $44 a share.

Energy Transfer declined to comment beyond the statement, Vicki Granado, a spokeswoman, said in an e-mail message.

Pipeline Unit

Either offer to buy Southern Union would be the biggest purchase of a pipeline company this year, according to data compiled by Bloomberg.

Shareholders will be able to take cash or a unit in Energy Transfer, a master-limited partnership. Up to 60 percent of shareholders will be able to accept cash under the agreement.

About 14 percent of Southern Union’s shareholders have already agreed to accept payment in units. That’s roughly the same amount owned by Southern Union President Eric Herschmann, Chairman and Chief Executive Officer George Lindemann and members of Lindemann’s family, according to regulatory filings.

Energy Transfer will pay for the transaction in part by increasing the value of its previous agreement to sell Southern Union’s 50 percent stake in Citrus Corp., owner of a Florida pipeline system, to a subsidiary.

The original price of the “drop down” was for $1.9 billion in cash. Energy Transfer said today it would get an extra $100 million in units from the subsidiary, Energy Transfer Partners LP.

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