Energy Transfer Equity LP (ETE) brought Southern Union Co. (SUG) under the ETE banner on Monday, completing a mega merger that creates a midstream powerhouse with more than 44,000 miles of interstate natural gas pipelines and an estimated 30.7 Bcf/d of transportation capacity.

The $7.9 billion debt and equity tie-up was first announced last June (see Daily GPI, June 17, 2011), launching a two-month bidding war for SUG between ETE and Williams (see Daily GPI, Aug. 18, 2011; Aug. 8, 2011; July 20, 2011; July 15, 2011; July 6, 2011; June 27, 2011). However, the ETE merger was overwhelmingly approved by SUG shareholders in December (see Daily GPI, Dec. 12, 2011). Swift regulatory approval followed.

SUG is to operate as a subsidiary of ETE. The storied Houston company on Monday ceased to be publicly traded on the New York Stock Exchange. The company owned and operated one of the nation’s largest gas pipeline systems with more than 20,000 miles of gathering and transportation pipelines and one of North America’s largest liquefied natural gas import terminals, along with serving more than half a million natural gas end-user customers in Missouri and Massachusetts.

Under the terms of the merger agreement, SUG stockholders were given the option to exchange their common shares for $44.25/share in cash or one ETE common unit/share. Based on the final results of the merger elections, holders of around 54% of outstanding SUG shares, or about 68 million shares, are to receive cash, while holders of about 46% of outstanding SUG shares, or around 57 million shares, would receive ETE common units.

With the merger completed, ETE did as planned and sold SUG’s former subsidiary CrossCountry Energy LLC to gas pipeline partnership Energy Transfer Partners LP (ETP) for $2 billion. CrossCountry owns an indirect half-stake in Citrus Corp., which in turn owns the Florida Gas Transmission System.

CrossCountry joins ETP’s extensive pipeline operations, which include the largest intrastate pipeline system in Texas, as well as pipes that cross Arizona, Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Utah and West Virginia. ETP currently has about 18,000 miles of gathering and transportation pipelines, treating and processing assets, along with three storage facilities in Texas. In addition, ETP has a 70% stake in Lone Star NGL LLC, a joint venture (JV) that owns and operates natural gas liquids (NGL) storage, fractionation and transportation assets in Texas, Louisiana and Mississippi.

ETE also owns the general partner of Regency Energy Partners LP, which holds a 30% interest in ETP’s Lone Star NGL JV.

UBS Energy analyst Ronald J. Barone said in a note to clients that ETE is a “buy” now that the merger is completed.

“We believe most ETP investors are already looking toward 2013, when many of its growth projects…come online,” said Barone. “In the interim, we believe ETP’s intrastate business could remain under pressure due to low basis differentials and weak storage results.”

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