Energy Transfer Equity, L.P. And Southern Union Announce Successful Completion Of Merger (Transcript) - TheStreet

Southern Union Company (SUG)

Energy Transfer Equity, L.P. and Southern Union Announce Successful Completion of Merger Call

March 26, 2012 03:00 pm ET


Martin Salinas - CFO, Energy Transfer Equity

Kelcy Warren - Chairman & CEO, Energy Transfer Equity


James Jampel - HITE

Ross Payne - Wells Fargo

Harry Mateer - Barclays Capital



Compare to:
Previous Statements by SUG
» Southern Union Co. Q3 2009 Earnings Call Transcript
» Southern Union Company Q4 2008 Earnings Call Transcript
» Southern Union Co. Q3 2008 Earnings Call Transcript

Good day ladies and gentlemen and welcome to the Energy Transfer Partners investor conference call SUG merger completed. My name is Tasha and I will be your operator for today. At this time all participants are in a listen only mode. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I will now turn the conference over to your host for today, Mr. Martin Salinas, Energy Transfer CFO. Please proceed.

Martin Salinas

Thanks Tasha and good afternoon everyone. Well after many months about talking about this, we are proud to say that Energy Transfer Equity today has successfully completed its merger with Southern Union Company. The merger creates a $40 billion plus group of integrated midstream companies in the United States natural gas industry with accretion to ETE unit holders, not only in the near term, but also over the long term. After my prepared remarks we will go into Q&A and I have Kelcy, Mackie, and John McReynolds here with me to answer your questions.

During the call I will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on our beliefs as well as certain assumptions and information available to us. Now let's talk a little bit about the transaction details. The transaction is valued at roughly $9.4 billion, consisted of $5.8 billion in cash and equity consideration and roughly $3.6 billion of assumed debt.

The SUG shareholder elections resulted in approximately 54% taking cash and 46% electing ETE units. The transaction was structured as a merger between ETE and Southern Union’s holding companies which resulted in Southern Union becoming a wholly owned subsidiary of ETE. And in connection with the acquisition, ETP also acquired today Southern Union’s 50% interest in Citrus from ETE for $2 billion as we previously announced.

The consideration included $1.895 billion of cash and a 105 million of newly issued ETP common units. I recall that EPT raised roughly $2 billion in senior notes earlier this year for this transaction. Of the cash consideration, $1.45 billion was used by ETE to fund the cash portion of the Southern Union acquisition and roughly $445 million was utilized to repay existing debt at the Southern Union level.

From a transaction rationale perspective and we have talked about this before, but let me reiterate. ETE’s cash flow as a result of this transaction become much more diversified resulting in a significant portion of the pro forma cash source from large scale, regulated and investment-grade operations. The combined network will consist of roughly 45,000 miles of pipeline, one of the largest in the United States. It also complements our existing, supply focused interstate and intrastate operations with a largely regulated demand side, market centric set of operations.

Including Southern Union, the ETE family will be able to transport roughly 31 Bcf of natural gas per day across not only in intrastate but also interstate pipelines. We'll also have roughly 184 Bcf of natural gas source capacity and processing capacity of 2 Bcf and growing significantly over the next several years.

In addition significant increases in fee-based revenues will be realized from long-term contracts with strong credit quality customers. We also have an attractive and complementary asset aligned with ETE’s growth strategy. In addition, this provides a larger, more competitive interstate and midstream platform with significantly enhanced and expanded geographic diversity, not to mention the significant organic growth opportunities that we see in the strategic geographic locations across the United States.

In addition, strong commercial and operational synergies will be realized as the combined the existing natural gas or gas liquids operations and not to mention the expanded platform that we will see in the Permian basin where we see a significant amount of growth opportunities and enhancement to our Lone Star JV. From a financing perspective and as a result of the Southern Union shareholder election and also taking into consideration fees and expenses and the repayment of borrowings under ETE’s revolving credit facility, we have closed a $2 billion secured term loan as well.

The proceeds from the loan coupled with the proceeds from the Citrus merger will satisfy the cash consideration of the Southern Union merger. And as it relates to the term loan, it will be a five-year maturity with a LIBOR plus 300 basis point spread, a 75 basis point LIBOR floor, no amortization, an original issue discount at 98% customary terms and covenants. And I'll just say how pleased we are seeing over $3.5 billion of commitment on this term loan, something that we certainly believed as we launched the transaction several weeks ago.

In addition this also eliminates the need to draw on the $3.7 billion bridge facility that we had previously entered into and as such have terminated that facility to date. From an integration perspective, we have put together teams from both Energy Transfer and Southern Union to create and manage our commercial, regulatory, operational, financial, accounting and HR integrations across the organizations. And as we have talked about before, our integration team has confirmed a cost savings estimate of at least $100 million per annum which we believe will be realized over the next 12 to 24 months.

Read the rest of this transcript for free on