(WMB) Williams Bids for Southern Union

Williams Companies (WMB) has offered to acquire all of the outstanding shares of Southern Union Company (SUG) for a total cash value of $4.86 billion, topping the bid of $4.2 billion that was placed by Energy Transfer Equity L.P. (ETE). The total enterprise value of the deal is estimated at $8.7 billion, which includes a debt assumption of $3.7 billion.

In its bid, Williams proposed to pay $39 per share to Southern Union Company. This represents a premium of 18% over Energy Transfer’s purchase price of $33 per share.

Barclays Capital (BCS) and Citigroup (C) –– acting as financial consultants for Williams –– showed immense confidence in the transaction and commented that the company is financially stable to make this all cash acquisition.

Williams plans to utilize Southern Union’s network of pipelines to connect customers in Florida to new sources of natural gas in the Permian Basin and Granite Wash field in Texas and Oklahoma. The alliance is expected to form a major pipeline operator with nearly 30,000 miles of regulated pipelines.

With this deal, Williams also expects to realize cost savings of more than $50 million per year that will likely boost the company’s cash flows, supporting its policy of high-dividend payout.

Williams management believes that its tender is more transparent and lucrative for Southern Union stakeholders than that of Energy Transfer’s that was submitted last week. Williams’ spokesperson commented that the company looking forward to closing this deal as soon as possible.

With the successful completion of the acquisition, Williams intends to blend the strategically positioned asset base of both companies. This will strengthen Williams’ foothold in the North American region and provide it with access to the rich shale basins and end-use markets.

Moreover, Williams stated that this proposal will not affect its plans to split its exploration and production business into an independent trading company. The spin-off is slated to take place in the third quarter of 2011.

Williams is an integrated energy firm that primarily finds, produces, gathers, processes and transports natural gas in the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard and the Marcellus Shale in Pennsylvania.

We are maintaining our long-term Neutral rating on Williams.

BARCLAY PLC-ADR (BCS): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

ENERGY TRAN EQT (ETE): Free Stock Analysis Report

SOUTHN UNION CO (SUG): Free Stock Analysis Report

WILLIAMS COS (WMB): Free Stock Analysis Report

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