In an effort to expedite regulatory approval of CMS’ sale of Panhandle Eastern Pipe Line and subsidiaries, AIG Highstar Capital LP., a private equity fund sponsored by American International Group, has decided to withdraw from the transaction, making Southern Union the sole purchaser of the interstate gas pipeline business.

The companies hope that AIG Highstar’s withdrawal from the transaction will help resolve regulatory issues that arose as a result of AIG Highstar’s ownership of Southern Star Central Gas Pipeline Inc., which it purchased from Willams last year.

“We are committed to executing our asset sales plan and this modified agreement clears the way for the CMS Panhandle sale to close on schedule. This sale is a significant step forward in our efforts to increase our financial flexibility, strengthen our balance sheet, and preserve our liquidity,” CMS Energy CEO Ken Whipple said.

With the amended agreement in place, which each board of directors has already approved, the companies expect closing by June 30. The new deal has also reduced the purchase price for Panhandle by $37.5 million to approximately $1.79 billion. Southern Union said it will pay $584.3 million in cash plus three million shares of Southern Union common stock, and will assume approximately $1.166 billion of debt. The original definitive agreement provided for a cash payment of about $662 million. CMS Energy said it will use the cash proceeds of the transaction and from the ultimate sale of the Southern Union common stock to accelerate debt reduction.

In another attempt to streamline the regulatory review, Southern Union and AIG Highstar have agreed to immediately terminate an agreement under which Southern Union’s wholly-owned subsidiary, Energy Worx, Inc., provided management services to AIG Highstar’s Southern Star Central Gas Pipeline.

“We are very pleased to have reached an agreement with CMS to restructure the transaction as this step moves us considerably closer to obtaining FTC approval. We remain confident that this asset will be materially accretive to Southern Union shareholders,” said Thomas F. Karam, president of Southern Union.

The only remaining regulatory review necessary to close the transaction is that of the FTC under the Hart-Scott-Rodino Antitrust Improvement Act. Southern Union and CMS continue to pursue resolution of matters with FTC staff. The deal was first announced in late December (see NGI, Jan. 6).

The CMS Panhandle Companies include CMS Panhandle Eastern Pipe Line Co., CMS Trunkline Gas Co., CMS Trunkline LNG Co., which operates an LNG terminal complex at Lake Charles, LA, and the CMS Sea Robin Pipeline Co.

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