Southern Union Co. has revealed itself as the “stalking horse” for Enron Corp.’s natural gas pipeline assets, announcing it would pay $2.3 billion, topping an offer by Oscar Wyatt Jr.’s company by $55 million. Creditors are expected to ask the bankruptcy court to set a new auction for August, with the Southern Union bid as the benchmark.

A spokeswoman for Wyatt’s NuCoastal declined comment, saying the company is bound by a confidentiality agreement. Southern Union also will provide no more public information until the court issues its decision.

According to Southern Union, CCE Holdings, a joint venture of Southern Union and GE Commercial Finance’s Energy Financial Services, would pay $1.8 billion in cash and assume $461 million in subsidiary Transwestern Pipeline Co.’s outstanding debt for CrossCountry Energy LLC. Wyatt-led NuCoastal LLC offered $1.74 billion in cash and the assumption of $461 million in debt (see Daily GPI, June 22). Enron’s Official Unsecured Creditors’ Committee will ask a judge on Thursday to accept the new bid.

The sale to NuCoastal, a Houston-based group led by Wyatt that includes Citigroup and private investment companies Kelso & Co. of New York and ArcLight Capital Partners of Boston, was approved in May by Enron’s board of directors and supported by the creditors’ committee. The NuCoastal sale was expected to close by the fourth quarter.

However, NuCoastal’s offer has to be approved by the U.S. Bankruptcy Court for the Southern District of New York. The court is overseeing an “overbid” process, which allows other potential buyers the opportunity to submit higher bids. Besides reviewing the Southern Union offer, the creditors’ committee will ask Judge Arthur Gonzalez also to throw out a $24 million break-up fee that is part of the NuCoastal bid.

Southern Union, which is based in Wilkes-Barre, PA, operates more than 10,000 miles of natural gas pipelines from the Gulf of Mexico, South Texas and the Panhandle regions of Texas and Oklahoma to major U.S. markets in the Midwest and Great Lakes region. Through its Houston-based subsidiary, Panhandle Energy, the company owns and operates Panhandle Eastern Pipe Line Co., Trunkline Gas Co., Sea Robin Pipeline Co., Trunkline LNG Co. and Southwest Gas Storage Co.

Trunkline LNG, located in Lake Charles, LA, is currently the largest U.S. LNG import terminal. Through its local distribution companies, Missouri Gas Energy, PG Energy and New England Gas Co., Southern Union also serves nearly 1 million natural gas end-user customers in Missouri, Pennsylvania, Massachusetts and Rhode Island.

Enron formed Houston-based CrossCountry in June 2003 as a holding company for the company’s interests in Transwestern, Citrus Corp. and Northern Plains Natural Gas Co. (see Daily GPI, June 26, 2003). The three businesses, which have about 1,100 employees, have 8.5 Bcf/d of capacity and 9,900 miles of pipeline.

Transwestern is a wholly owned 2,600-mile pipeline system extending from West Texas to the California border. Citrus, which is held jointly by Enron and Southern Natural Gas, an El Paso affiliate, owns the 5,000-mile Florida Gas Transmission system that runs from South Texas to South Florida. The wholly owned Northern Plains is one of the general partners of Northern Border Partners LP, which owns interests in Northern Border Pipeline Co. Midwestern Gas Transmission Co., Viking Gas Transmission Co. and Guardian Pipeline LLC.

Analysts and investors were cool to Southern Union’s offer, which would double the size of the company. Just last year, it doubled its size with the $662 million acquisition of Panhandle Eastern.

“They are still in the process of improving their balance sheet after the last acquisition,” said Michael Helm, an A.G. Edwards & Son Inc. analyst. “This would be a big acquisition, which would double their size again.”

However, with the stalking horse bid, other pipeline companies also may try to move in, according to analysts. Until Gonzalez makes his ruling on the NuCoastal or Southern Union offer, Enron and its financial adviser Blackstone Group are prohibited from discussing the sale with other bidders. If Gonzalez rules in favor of the creditors’ committee on Thursday, Enron would be able to solicit bids for a longer period of time.

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