9:08 p.m. | Updated
A battle over natural gas pipelines broke out on Thursday, as the Williams Companies announced a $4.9 billion takeover proposal for the Southern Union Company in an effort to top a $4.2 billion bid by Energy Transfer Equity.
Williams said that it would pay $39 a share in cash, an offer it said was far simpler and more attractive than Energy Transfer’s all-stock deal, which would pay Southern Union shareholders special partnership units worth about $33 each.
The Williams offer is the latest unsolicited deal to be announced this year, as spurned suitors have more confidence to fight for their takeover targets. Shares in Southern Union have risen 18.5 percent since June 17, the day after the Energy Transfer deal was announced, closing on Thursday at $34.15 — suggesting that investors had expected a higher offer to appear.
Buying Southern Union would strengthen Williams’s business in natural gas transportation. Together, the companies would have nearly 30,000 miles of regulated pipelines. A deal would give Williams access to pipelines connected to several shale formations in which it has no presence.
“From a strategy standpoint, we’re really focused on these new resource plays,” said Alan Armstrong, chief executive of Williams. “We’re really focused on becoming a premier energy infrastructure provider.”
While few in the energy industry expect natural gas prices to rise in the near term, rising demand for alternatives to oil has prompted many companies to focus on the fuel.
Representatives for Southern Union and Energy Transfer did not have immediate comment on the Williams offer.
Mr. Armstrong, said in a telephone interview that he approached Southern Union’s chairman and chief executive, George L. Lindemann, this year about a potential transaction.
But Mr. Lindemann demurred, leaving Mr. Armstrong surprised when Southern Union announced its deal last week.
“At first, I was disappointed, because it was something that we had been looking at, and we’ve studied these assets for a while,” he said.
Williams is already in the middle of a reorganization that will split its exploration and production operations, with an initial public offering of its WPX Energy arm this year a first step. A deal for Southern Union would not affect that spinoff, Williams said.
One question is whether Williams can successfully woo Mr. Lindemann, who built up Southern Union. He is the company’s biggest shareholder, with a 6.23 percent stake.
Williams said that its investment banks, Barclays Capital and Citigroup, had provided “highly confident” letters that they would drum up the necessary financing for the deal, though they had not signed commitments.
Still, Williams’s offer is not conditioned on financing, and Mr. Armstrong said that his company was in good enough financial health to carry out the transaction. As of last year, the company carried about $8.6 billion in long-term debt and $252 million in cash. Williams expects to retain an investment-grade credit rating as well.
Mr. Armstrong declined to say whether Williams would go directly to Southern Union shareholders if the company’s board stuck with the Energy Transfer deal.
“This is a very superior offer, very simple and very transparent,” he said. “We expect to get engaged with their special committee very rapidly.”
In addition to Barclays Capital and Citigroup, Williams is also being advised by the law firms Cravath Swaine Moore and Gibson Dunn Crutcher.
Southern Union has retained Evercore Partners and the law firms Locke Lord Bissell Liddell and Roberts Holland as advisers.
Energy Transfer is being advised by Credit Suisse and the law firms Latham Watkins and Bingham McCutchen.
Article source: http://feeds.nytimes.com/click.phdo?i=2854dca081cc9a97d760b9f8a55083a4