To become less vulnerable to natural gas basis risk is a key reason Energy Transfer Equity LP (ETE) has aggressively pursued Southern Union Co., ETE Chairman Kelcy Warren said Thursday.
Warren explained the reasoning behind his company’s bid to buy Southern Union during a second quarter earnings conference call. Southern Union in July accepted a $44.25/share revised merger offer from ETE, which, if completed would create the largest natural gas pipeline franchise in the country (see NGI, July 25).
However, the deal is far from done. After ETE in mid-June launched a friendly takeover attempt of Southern Union with an offer of $33/share, Williams countered a week later with a $39/share offer. ETE responded with a $40/share offer, only to be topped by Williams, which put a $44/share offer on the table. ETE then chipped in a quarter; Williams has not yet responded. There’s still time, but Warren said he is determined to complete the buy-out.
“Southern Union creates a great deal of diversity and access to areas that we previously did not access,” he said. “And really, the Southern Union gas services assets are very complementary to grow that business…We’re going to be less vulnerable to basis, which has really hammered us…on the basis that exists today, if you are a pure natural gas company, it’s very difficult to make much money…” Merging with Southern Union “gives us more exposure to margins that we really need as a partnership.”
Warren was asked whether ETE’s risk profile would be higher because it had continued to counter Williams’ bids with ever-higher offers.
“We have been very aggressive on Southern Union; we know that,” he said. “However, it’s been hard to get where we are, but we’re very excited about what that acquisition does for us. We were too one-sided…missing business opportunities with customers…We have made some very big steps here the last several months and we’re very excited about the future.”
ETP net income in 2Q2011 was $66.3 million, compared with $19.3 million in 2Q2010. Distributable cash flow before acquisition-related expenses was $124.6 million, versus $126.2 million in the year-ago period. ETE’s principal sources of cash flow are distributions it receives from its investments in the limited and general partner interests in Energy Transfer Partners LP and Regency Energy Partners LP. ETE currently has no operating activities apart from those conducted by ETP and Regency and their operating subsidiaries.
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