Southern Union Co. has responded to its top shareholder's concerns and plans to have a master limited partnership (MLP) in place by the end of September. The MLP, announced as part of the Houston-based company's long-range strategic plans, initially will hold the Southwest Gas Storage Co., but other assets eventually are expected to be moved into the partnership.

The decision to create an MLP ended a possible proxy battle with hedge fund Sandell Asset Management, which filed a complaint against Southern Union in December (see Daily GPI, Jan. 22). Under pressure, Southern Union in January agreed to amend its bylaws to allow the nomination of independent board members. Sandell also had suggested the company create an MLP, continue to sell its remaining local gas distribution utilities and raise its annual dividend by $1/share.

The first expected MLP asset, Southwest Gas Storage, is one of Southern Union's Panhandle Energy pipeline companies. Southwest Gas operates underground natural gas storage facilities in the Borchers North Storage Field, Meade County, KS; North Hopeton Storage Field, Woods County, OK; Waverly Storage Field, Morgan and Sangamon counties, IL; and Howell Storage Field, Livingston and Washtenaw counties, MI. Total working storage capacity is 60.9 MMDth.

Credit Suisse research analysts Carl Kirst and Stuart Weinman said Thursday the MLP will be the "cornerstone" of Southern Union's plans to create shareholder value.

"This starter asset is relatively small...which should make for easy digestion by the traditional retail MLP investor," the analysts wrote of Southwest Gas. "The company will also evaluate future 'drop down' sales of other assets to the MLP; we believe the most likely of which could be its Lake Charles LNG [liquefied natural gas] facility, a potentially $1.5 billion enterprise value asset in its own right. We would emphasize that it's not necessarily the act of establishing an MLP that creates value, but this action should get investors refocused on the company's substantial (and undervalued, in our opinion) pipeline asset base."

In a statement, Sandell said that in light of Southern Union's "encouraging strategic plan," it will withdraw its nomination of an alternate slate of directors in connection with the company's upcoming annual meeting of stockholders.

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