-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IknAZ6Oiw4Y/jui9Q+IGYXJqxgEaU8td7pVJxoIxqhme5JNCd6BoFkWw/TpXEwq5 sbPoDt07zjebw8Fv1iSELg== 0001013594-06-000383.txt : 20060626 0001013594-06-000383.hdr.sgml : 20060626 20060626094016 ACCESSION NUMBER: 0001013594-06-000383 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20060626 DATE AS OF CHANGE: 20060626 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN UNION CO CENTRAL INDEX KEY: 0000203248 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 750571592 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-20968 FILM NUMBER: 06923575 BUSINESS ADDRESS: STREET 1: 417 LACKAWANNA AVENUE CITY: SCRANTON STATE: PA ZIP: 18503-2013 BUSINESS PHONE: (570) 614-5000 MAIL ADDRESS: STREET 1: 417 LACKAWANNA AVENUE CITY: SCRANTON STATE: PA ZIP: 18503-2013 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SANDELL ASSET MANAGEMENT CORP CENTRAL INDEX KEY: 0001140474 IRS NUMBER: 000000000 STATE OF INCORPORATION: E9 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 40 WEST 57TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2126035700 MAIL ADDRESS: STREET 1: 40 WEST 57TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D 1 southern13d-062606.txt JUNE 26, 2006 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 Southern Union Company - ------------------------------------------------------------------------------- (Name of Issuer) Common Stock (Title of Class of Securities) 844030106 -------------- (CUSIP Number) Sandell Asset Management Corp. 40 West 57th Street 26th Floor New York, NY 10019 Attention : Richard Gashler, General Counsel 212-603-5700 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) June 14, 2006 ------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box |_|. SCHEDULE 13D - ------------------------------------------------------------------------------- CUSIP No 84403016 - ------------------------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg Master Investments Ltd. - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |X| (b) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS WC - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands - ------------- ----------------------------------------------------------------- - ------------- ----------- ----------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER 0 SHARES ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER 10,761,414 OWNED ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER 0 REPORTING ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER 10,761,414 WITH - ------------- ----------- ----------------------------------------------------- - ------------- ----------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 10,761,414 - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.62% - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Sandell Asset Management Corp. - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |X| (b) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands - ------------- ----------------------------------------------------------------- - ------------- ----------- ----------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER 0 SHARES ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER 10,761,414 OWNED ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER 0 REPORTING ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER 10,761,414 WITH - ------------- ----------- ----------------------------------------------------- - ------------- ----------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 10,761,414 - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.62% - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg International Limited - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |X| (b) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands - ------------- ----------------------------------------------------------------- - ------------- ----------- ----------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER 0 SHARES ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER 10,761,414 OWNED ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER 0 REPORTING ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER 10,761,414 WITH - ------------- ----------- ----------------------------------------------------- - ------------- ----------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 10,761,414 - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.62% - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg International Holdings Limited - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |X| (b) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands - ------------- ----------------------------------------------------------------- - ------------- ----------- ----------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER 0 SHARES ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER 10,761,414 OWNED ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER 0 REPORT-ING ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER 10,761,414 WITH - ------------- ----------- ----------------------------------------------------- - ------------- ----------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 10,761,414 - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.62% - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Thomas E. Sandell - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |X| (b) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Sweden - ------------- ----------------------------------------------------------------- - ------------- ----------- ----------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER 0 SHARES ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER 10,761,414 OWNED ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER 0 REPORT-ING ----------- ----------------------------------------------------- ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER 10,761,414 WITH - ------------- ----------- ----------------------------------------------------- - ------------- ----------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 10,761,414 - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.62% - ------------- ----------------------------------------------------------------- - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN - ------------- ----------------------------------------------------------------- Item 1. Security and Issuer This statement on Schedule 13D relates to the common stock, par value $1.00 per share (the "Common Stock"), of Southern Union Company, a Delaware corporation ("Issuer"). The principal executive offices of Issuer are located at: 5444 Westheimer Road Houston, Texas 77056 Item 2. Identity and Background (a). NAME The names of the persons filing this statement on Schedule 13D are: Castlerigg Master Investments Ltd., a British Virgin Islands company ("Castlerigg Master Investments"), Sandell Asset Management Corp., a Cayman Islands company ("SAMC"), Castlerigg International Limited, a British Virgin Islands company ("Castlerigg International"), Castlerigg International Holdings Limited, a British Virgin Islands company ("Castlerigg Holdings" and, collectively with Castlerigg Master Investments and Castlerigg International, the "Fund"), and Thomas E. Sandell, a citizen of Sweden ("Sandell") (together, the "Reporting Persons"). The shares of common stock beneficially owned by the Reporting Persons are owned directly by Castlerigg Master Investments. Castlerigg Holdings is the controlling shareholder of Castlerigg Master Investments and Castlerigg International is the controlling shareholder of Castlerigg Holdings. SAMC is the investment manager of the Fund. The controlling shareholder of SAMC is Sandell. (b). RESIDENCE OR BUSINESS ADDRESS The principal business address for each of Castlerigg Master Investments, Castlerigg International and Castlerigg Holdings is c/o Citco Fund Services (Curacao) N.V., Kaya Flamboyan 9, P.O. Box 812, Curacao, Netherlands, Antilles. The principal business address for each of SAMC and Sandell is 40 West 57th Street, 26th Floor, New York, New York, 10019. (c). PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND THE NAME, PRINCIPAL BUSINESS AND ADDRESS OF ANY CORPORATION OR OTHER ORGANIZATION IN WHICH SUCH EMPLOYMENT IS CONDUCTED The Fund is a private investment fund whose investment objective is to achieve superior investment returns, focusing primarily on a global, event-driven investment strategy, including global, event-driven risk arbitrage, reorganizations, mergers, spin-offs, liquidations and distressed securities and other situations. Information regarding the directors, executive officers and/or control persons of Castlerigg Master Investments, Castlerigg International, Castlerigg Holdings, SAMC, and Sandell (collectively, the "Instruction C Persons") is set forth in Appendix III attached hereto. (d), (e). CRIMINAL CONVICTIONS; CIVIL PROCEEDINGS During the last five years, none of the Reporting Persons have: (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations or prohibiting activities subject to federal or state securities laws or finding any violation of such laws. (f). CITIZENSHIP Castlerigg Master Investments, Castlerigg International and Castlerigg Holdings British Virgin Islands companies. SAMC is a Cayman Islands company. Sandell is a citizen of Sweden. Item 3. Source and Amount of Funds or Other Consideration Castlerigg Master Investments acquired the 10,761,414 shares of the Common Stock at an aggregate cost of $264,620,529.18. The funds used to purchase the shares of Common Stock were obtained from a combination of the general working capital of the investment entities managed by the Reporting Persons and margin account borrowings made in the ordinary course of business. Item 4. Purpose of Transaction The Reporting Persons acquired the shares of Common Stock for investment purposes in the ordinary course of business because they believed the shares to be undervalued in the market. On June 26, 2006, SAMC sent a letter (the "Letter") to the Board of Directors of the Issuer outlining steps SAMC believed the Issuer could take to maximize shareholder value for all Issuer shareholders. Among SAMC's suggestions were that the Issuer (i) create a tax advantageous master limited partnership, (ii) continue to sell the remaining local gas distribution utilities and (iii) raise the annual dividend to $1 per share to bring the Company's dividend policy more in line with the Issuer's peers, and consider putting the Issuer up for sale. A copy of the letter is attached hereto as Exhibit A. Except as described above, none of the Reporting Persons has any plans or proposals which relate to, or could result in, any of the matters referred to in paragraphs (a) through (j), inclusive, of the instructions to Item 4 of Schedule 13D. The Reporting Persons may, at any time and from time to time, review or reconsider their position and/or change their purpose and/or formulate plans or proposals with respect thereto. Depending on the Issuer's response to the Letter and the stock price of the Issuer, among other things, the Reporting Persons may consider proposing a slate of nominees for election as directors at the Company's next annual meeting. Representatives of SAMC may engage in discussions with members of the Issuer's board of directors as well as with other shareholders of the Issuer regarding the suggestions contained in the Letter and other matters of interest to the Company's shareholders. Although none of the Reporting Persons has any specific plan or proposal to acquire or dispose of the shares of Common Stock, each Reporting Person at any time and from time to time may (i) acquire additional shares or securities of the Issuer, (ii) dispose of any or all of its securities of the Issuer, or (iii) enter into privately negotiated derivative transactions with institutional counterparties to hedge the market risk of some or all of their positions in its securities of the Issuer, depending upon an ongoing evaluation of the investment in such securities, prevailing market conditions, other investment opportunities, liquidity requirements of the Reporting Persons, and/or other investment considerations. Item 5. Interest in Securities of the Issuer (a). The Reporting Persons as a group beneficially own 10,761,414 shares of Common Stock, representing 9.62% of the outstanding shares of Common Stock. (b). None of the Reporting Persons has sole power to vote or to direct the vote or sole power to dispose or to direct the disposition of the Shares. Each of the Reporting Persons has shared power to vote and to direct the vote and shared power to dispose and to direct the disposition of the 10,761,414 shares of Common Stock held by Castlerigg Master Investments. (c). A list of the transactions in Issuer common stock that were effected by the Reporting Persons during the past sixty days is attached as Appendix I. (d). N/A (e). N/A Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer See Item 5(c) for information regarding certain options. Item 7. Material to Be Filed as Exhibits The following documents are filed as exhibits: Appendix I: List of the transactions in Issuer Common Stock that were effected by the Reporting Persons during the past sixty days. Appendix II: Joint Filing Agreement. Appendix III: Instruction C Person Information. Exhibit A: Letter to Issuer's Board of Directors dated June 26, 2006 (the "Letter"). Exhibit B: Presentation to Issuer attached to the Letter. Signature After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: June 26, 2006 CASTLERIGG MASTER INVESTMENTS LTD. By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell, Director SANDELL ASSET MANAGEMENT CORP. By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell, Director CASTLERIGG INTERNATIONAL LIMITED By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell, Director CASTLERIGG INTERNATIONAL HOLDINGS LIMITED By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell, Director /s/ Thomas E. Sandell --------------------- Thomas E. Sandell APPENDIX I TRANSACTIONS EFFECTED DURING THE PAST SIXTY DAYS (All regular market transactions were effected on the New York Stock Exchange.) - -------------- ------------- ----------- ----------- ------------------- Date of Person Amount of Price per Where and how the transaction effecting securities share transaction was transaction Bought/ or unit effected (Sold) - -------------- ------------- ----------- ------------ ------------------- - -------------- ------------- ----------- ------------ ------------------- 5/1/2006* Privately SAMC negotiated 75,000 $25.96080 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 5/2/2006* Privately SAMC negotiated 75,000 25.68580 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 5/3/2006* Privately SAMC negotiated 25,000 25.79850 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 5/17/2006* Privately SAMC negotiated 25,000 23.79000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 5/24/2006* Privately SAMC negotiated 1,100 22.90000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 5/31/2006* Privately SAMC negotiated 304,100 24.38960 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006**** Privately SAMC negotiated 175,000 24.86370 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006**** Privately SAMC negotiated 1,200,150 24.86370 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006**** Privately SAMC negotiated 25,000 24.03970 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006**** Privately SAMC negotiated 25,000 26.06840 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006**** Privately SAMC negotiated 1,100 23.13910 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006**** Privately SAMC negotiated 75,000 25.96220 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006**** Privately SAMC negotiated 304,100 24.66020 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006 Regular market SAMC 31,200 24.80510 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006 Regular market SAMC 50,000 24.82000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006 Regular market SAMC 2,500 24.80000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/1/2006 Regular market SAMC 71,100 24.82600 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/8/2006 Regular market SAMC 12,600 24.50140 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/8/2006 Regular market SAMC 86,000 24.48980 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/8/2006 Regular market SAMC 130,900 24.31260 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/9/2006 Regular market SAMC 591,900 24.53350 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/9/2006 Regular market SAMC 4,000 24.51500 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/9/2006 Regular market SAMC 68,200 24.52940 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/12/2006 Regular market SAMC 200,000 24.67870 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/12/2006 Regular market SAMC 100,000 24.56680 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/14/2006 Regular market SAMC 131,000 23.56160 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/14/2006 Regular market SAMC 166,600 23.51800 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/14/2006 Regular market SAMC 400,000 23.98580 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/15/2006 Regular market SAMC 2,142 24.31080 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/15/2006 Regular market SAMC 6,200 24.66000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/15/2006 Regular market SAMC 125,000 24.45240 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/15/2006 Regular market SAMC 505,400 24.62900 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/16/2006 Regular market SAMC 551,000 25.09000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/16/2006 Regular market SAMC 30,700 24.89580 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/19/2006 Regular market SAMC 50,000 24.80590 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/19/2006 Regular market SAMC 50,000 24.75000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/19/2006 Regular market SAMC 5,848 24.91880 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/19/2006 Regular market SAMC 31,100 24.94150 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/19/2006 Regular market SAMC 510,600 24.89370 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/19/2006 Regular market SAMC 50,000 24.80590 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/19/2006 Regular market SAMC 49,800 24.75000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/19/2006 Regular market SAMC 28,900 24.97000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/20/2006 Regular market SAMC 25,000 24.75000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/20/2006 Regular market SAMC 75,000 24.90070 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/20/2006 Regular market SAMC 250,000 25.08040 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/20/2006 Regular market SAMC 125,000 24.90070 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/20/2006 Regular market SAMC 20,000 24.75000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/20/2006 Regular market SAMC 94,200 24.87500 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/20/2006 Regular market SAMC 361,000 24.80070 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/20/2006 Regular market SAMC 144,100 25.19940 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/21/2006 Regular market SAMC 492,000 25.64860 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/21/2006 SAMC Regular market 25,000 25.53000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/22/2006 Regular market SAMC 188,200 25.63800 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/22/2006 Regular market SAMC 44,300 25.48300 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/22/2006 Regular market SAMC 13,019 25.57670 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/22/2006 Regular market SAMC 585,000 25.61730 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/22/2006 Regular market SAMC 5,100 25.49610 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/23/2006 Regular market SAMC 3,000 25.78000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/23/2006 Regular market SAMC 100,000 25.60000 transaction - -------------- ------- ---------- ---------- ------------------- - -------------- ------- ---------- ---------- ------------------- 6/23/2006 Regular market SAMC 136,700 25.61160 transaction - -------------- ------- ---------- ---------- ------------------- * These transactions represent privately negotiated back-to-back call and put transactions with a financial institution through which the Reporting Persons acquired an economic interest in such shares of Common Stock and as a result they were subject to the same economic gain or loss as if they had purchased the underlying shares. **** These transactions represent the exercise of the call options and a sale of the put options to the same counterparty for the same number of shares. APPENDIX II JOINT FILING AGREEMENT The undersigned hereby agree that the statement on Schedule 13D with respect to the common stock of Southern Union Company dated as of June 26, 2006 is, and any further amendments thereto signed by each of the undersigned shall be, filed on behalf of each of the undersigned pursuant to and in accordance with the provisions of Rule 13d-1(k)(1) under the Securities Exchange Act of 1934, as amended. Dated: June 26, 2006 CASTLERIGG MASTER INVESTMENTS LTD. By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell, Director SANDELL ASSET MANAGEMENT CORP. By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell, Director CASTLERIGG INTERNATIONAL LIMITED By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell, Director CASTLERIGG INTERNATIONAL HOLDINGS LIMITED By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell, Director /s/ Thomas E. Sandell --------------------- Thomas E. Sandell Appendix III Information Regarding The Instruction C Persons Castlerigg Master Investments Ltd. Executive Officers ------------------------ ---------------------------------------- Name Title ------------------------ ---------------------------------------- ------------------------ ---------------------------------------- NONE ------------------------ ---------------------------------------- Castlerigg Master Investments Ltd. Directors The following table sets forth the name and mailing address (business or residence) of each of the directors of Castlerigg Master Investments Ltd., and the principal occupation and citizenship of each of those directors who are natural persons. - ------------------ -------------------- ----------------------- -------------- Name and Title Principal Address Citizenship Occupation - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- Thomas E. Sandell Portfolio Manager 40 West 57th Street, Sweden 26th Floor New York, NY 10019 - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- Daniel Mignon Executive of an Le Prince de Galles Belgium investment manager 10 Avenue de Grande- Bretagne MC-98000 Monte-Carlo MONACO - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- InterCaribbean N/A c/o Citco BVI Limited N/A Services Ltd. Citco Building Wickhams Cay PO Box 662 Road Town, Tortola British Virgin Islands - ------------------ -------------------- ----------------------- -------------- Castlerigg International Limited Executive Officers ------------------------- --------------------------------- Name Title ------------------------- --------------------------------- ------------------------- --------------------------------- Thomas E. Sandell President ------------------------- --------------------------------- Castlerigg International Limited Directors The following table sets forth the name and mailing address (business or residence) of each of the directors of Castlerigg International Limited, and the principal occupation and citizenship of each of those directors who are natural persons. - ------------------ -------------------- ----------------------- -------------- Name and Title Principal Address Citizenship Occupation - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- Thomas E. Sandell Portfolio Manager 40 West 57th Street, Sweden 26th Floor New York, NY 10019 - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- Daniel Mignon Executive of an Le Prince de Galles Belgium investment manager 10 Avenue de Grande- Bretagne MC-98000 Monte-Carlo MONACO - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- InterCaribbean N/A c/o Citco BVI Limited N/A Services Ltd. Citco Building Wickhams Cay PO Box 662 Road Town, Tortola British Virgin Islands - ------------------ -------------------- ----------------------- -------------- Castlerigg International Holdings Limited Executive Officers ------------------------ ---------------------------------------- Name Title ------------------------ ---------------------------------------- ------------------------ ---------------------------------------- NONE ------------------------ ---------------------------------------- Castlerigg International Holdings Limited Directors The following table sets forth the name and mailing address (business or residence) of each of the directors of Castlerigg International Holdings Limited, and the principal occupation and citizenship of each of those directors who are natural persons. - ------------------ -------------------- ----------------------- -------------- Name and Title Principal Address Citizenship Occupation - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- Thomas E. Sandell Portfolio Manager 40 West 57th Street, Sweden 26th Floor New York, NY 10019 - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- Daniel Mignon Executive of an Le Prince de Galles Belgium investment manager 10 Avenue de Grande- Bretagne MC-98000 Monte-Carlo MONACO - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- InterCaribbean N/A c/o Citco BVI Limited N/A Services Ltd. Citco Building Wickhams Cay PO Box 662 Road Town, Tortola British Virgin Islands - ------------------ -------------------- ----------------------- -------------- Sandell Asset Management Corp. Executive Officers The following table sets forth the name, title, principal occupation and citizenship of each of the executive officers of Sandell Asset Management Corp.. The business address of each person named below is 40 West 57th Street, 26th Floor, New York, N.Y. 10019. In each case, the principal occupation is represented by the person's title. - -------------------- -------------------------------- ------------------------- Name Title Citizenship - -------------------- -------------------------------- ------------------------- - -------------------- -------------------------------- ------------------------- Thomas E. Sandell Chairman of the Board Sweden of Directors Chief Executive Officer and Portfolio Manager - -------------------- -------------------------------- ------------------------- - -------------------- -------------------------------- ------------------------- Timothy O'Brien Chief Financial Officer United States of America - -------------------- -------------------------------- ------------------------- - -------------------- -------------------------------- ------------------------- Richard Gashler General Counsel United States of America - -------------------- -------------------------------- ------------------------- Sandell Asset Management Corp. Directors The following table sets forth the name, mailing address (business or residence), present principal occupation or employment and citizenship of each of the directors of Sandell Asset Management Corp. - ------------------ -------------------- ----------------------- -------------- Name and Title Principal Address Citizenship Occupation - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- Thomas E. Sandell Portfolio Manager 40 West 57th Street, Sweden 26th Floor New York, NY 10019 - ------------------ -------------------- ----------------------- -------------- - ------------------ -------------------- ----------------------- -------------- Daniel Mignon Executive of an Le Prince de Galles Belgium investment manager 10 Avenue de Grande- Bretagne MC-98000 Monte-Carlo MONACO - ------------------ -------------------- ----------------------- -------------- EXHIBIT A Sandell Asset Management 40 West 57th Street New York, NY 10019 June 26, 2006 The Board of Directors Southern Union Company 5444 Westheimer Road Houston, TX 77056 Attention: Mr. George L. Lindemann Chairman and Chief Executive Officer Dear Mr. Lindemann et al, Sandell Asset Management Corp ("Sandell") and the private investment funds advised by Sandell (collectively with Sandell, the "Sandell Funds") are the beneficial owners of 10,761,414 shares of the common stock of Southern Union Company ("Southern Union", "SUG" or the "Company") representing approximately 9.62% of SUG's total outstanding shares. We believe we are now the largest single shareholder of SUG. The Sandell Funds' sizeable investment in Southern Union reflects our steadfast belief in the attractiveness of the Company's assets and its cash flow generating ability. In our view, the current SUG stock price of $25.63 reflects a large and unwarranted discount to the intrinsic value of the Company that also does not recognize the strategic transformation of SUG from a regional gas utility to a natural gas-focused midstream & pipeline powerhouse. Despite this transformation and the Company's operational accomplishments, SUG's stock has meaningfully underperformed its peers, and continues to trade at a significant discount to both its peer group as well as to its intrinsic value. We believe the complexity of SUG's diverse operating assets - valuable as they may be - serves to hinder market appreciation of these businesses. It largely explains why, over the last several quarters, SUG's stock price has essentially remained unchanged within a relatively tight range. As you must surely share our disappointment with SUG's consistently underperforming stock price, we call upon you to take steps to simplify the organizational structure of the Company and to highlight the value of the disparate assets. Specifically, we believe the Board should immediately consider the following: i) Create a tax advantageous Master Limited Partnership that would more effectively highlight the cash flow strength and stability of the Transportation & Storage segment; ii) Complete the current asset divestitures and take steps to sell the remaining non-core gas distribution utilities (LDCs); and iii) Institute a dividend increase to $1.00 per share which would put position SUG shares to be more attractive to traditional yield seeking investors As demonstrated in the accompanying presentation, we believe the current intrinsic value of SUG to conservatively be $35 per share based on a variety of valuation metrics. While an increase in dividends will not meaningfully change the fundamental value of the Company, it will be an important catalyst in helping to narrow the currently large discount to fair value. Moreover, an MLP will provide greater value to stockholders given the tax-efficient nature of the structure and we estimate the adoption of an MLP is likely to boost SUG's stock to $36-$41 per share. Concurrently, we believe it is important to also examine whether SUG, in its current composition, is well suited to be efficiently valued by the equity market. As an alternative measure, the Board should also consider putting the Company up for sale if ultimately the value of SUG is likely to be more effectively and expeditiously maximized through a sale to financial, private or other strategic parties. We believe there will be significant interest in SUG's various assets and a strategic sale will likely achieve valuations at a significant premium to the current stock price. Regardless of whether the Board elects to undertake various strategic initiatives or put the Company up for sale, the upside to stockholders today is substantial. We request that the Board urgently consider our proposals, and to expeditiously formulate and articulate concrete initiatives to improve shareholder value. We are hopeful that, with Mr. George Lindemann and family collectively owning approximately 16% of the Company's shares, you will act in the best interest of all shareholders. As the largest single interest in Southern Union, we want to work constructively with the Board and management to explore ways to improve the Company's valuation. We believe that there is significant unrecognized value which can be addressed by our proposals and look forward to engaging the Company in seeking out our common interests. We look forward to hearing from you soon and can be reached at (212) 603-5700. Very truly yours, Thomas Sandell Chief Executive Officer Sandell Asset Management Attachment enclosed EXHIBIT B Presentation to Issuer Attached to the Letter Southern Union Company Maximizing Value for All Shareholders June 2006 Southern Union Company - Maximizing Value for All Shareholders Summary Perspective - ------------------------------------------------------------------------------- o Sandell Asset Management Corp. is the beneficial owner of 10,761,414 shares of the common stock of Southern Union Company ("SUG" or the Company) representing 9.62% of total outstanding SUG shares. Based on most recent public filings we believe we are the largest single shareholder of SUG o Our sizeable investment in the Company reflects our steadfast belief that SUG remains extremely undervalued given the quality of its assets and its cash flow generative strength o Over the last few years, SUG has evolved into a holding company with an aggregation of highly valuable assets o However, the complexity of these diverse assets, combined with the lack of a reasonable level of recurring distributions to shareholders, serves to magnify SUG's discount to both its peer group as well as to its intrinsic value o A simplification of the organizational and operational structure of SUG, and undertaking steps to highlight key assets would help narrow the large discount to fair value. Specifically, we believe the following measures would be meaningfully value enhancing: o Immediately take steps to create a tax advantageous Master Limited Partnership that would also more effectively highlight the cash flow strength and stability of the Transport & Storage segment >> In addition, an MLP would allow SUG to efficiently monetize assets to reinvest in growth opportunities o Continue down the path of selling remaining local gas distribution utilities (LDCs) >> We believe LDCs are non-core to Southern Union's portfolio of cash-generating assets, and transaction values continue to achieve a significant premium to trading levels o Institute a dividend policy of $1.00 per share referenced along a payout ratio of 50%-55% >> A higher dividend policy would demonstrate cash flow discipline which would also improve the attractiveness of the stock to traditional utility-oriented investors Southern Union Company - Maximizing Value for All Shareholders Summary Perspective (cont'd) - ------------------------------------------------------------------------------- o Alternatively, the Board should also seriously consider whether SUG, with its current asset configuration, is well suited to achieve proper public market valuation recognition and may want to consider putting SUG up for sale o The value SUG's assets may be better recognized by financial, private or other strategic parties o The Company has done an excellent job of growing earnings and restructuring its portfolio of assets, however the fruits of these efforts have not been adequately reflected in the SUG stock price performance o As the largest single shareholder of Southern Union we strongly urge the Board to treat this call with utmost urgency o We are hopeful that with Mr. George Lindemann and family collectively owning ~16% of SUG's equity that the Board would seriously consider our initiatives to maximize value for all shareholders o We look forward to further engagements with the Board and management Southern Union Company - Maximizing Value for All Shareholders Valuation: Intrinsic Value of SUG - ------------------------------------------------------------------------------- o Under various valuation metrics, the fair value of SUG is worth $35.00 per share, a 37% premium to current levels Southern Union Company Valuation -------------------------------------------------------------------------- ($ in millions, except per share values), 2008 Estimates 1) Based on Sum-of-Parts Analysis EBITDA Multiple Value -------------------------------------------------------------------- Gas Distribution $119.8 8.5 x $1,018.61 Transportation & Storage $465.5 9.5 x $4,421.89 SU Gas Services (Formerly Sid Rich) $209.4 8.0 x $1,675.00 Corporate ($10.1) 8.0 x ($80.40) ------------- Total Enterprise Value $7,035.10 Less: Net Debt ($3,023.85) ------------- Implied Equity Value $4,011.24 Shares Outstanding 115.3 ------------------------------------------------------------------ Per Share Value Based On Sum-of-Parts Analysis $34.79 ------------------------------------------------------------------ Premium to Current 35.8% 2) Based on 2008E P/E Multiple EPS Multiple Value --------------------------------------------------------------------- Per Share Value on Earnings $2.21 14.0 x $30.89 NPV of Tax Shield @ 8% Discoutn Rate 8.0% $4.51 ----------------------------------------------------------------- Per Share Value Based on P/E Ratio $35.40 ----------------------------------------------------------------- Premium to Current 38.1% 3) Based on 2008E EV/EBITDA Multiple EBITDA Multiple Value --------------------------------------------------------------------- Total Enterprise Value $784.6 9.0 x $7,061.61 Less: Net Debt ($3,023.85) Implied Equity Value $4,037.76 ------------------------------------------------------------------ Per Share Value Based On EV/EBITDA Ratio $35.02 ------------------------------------------------------------------ Premium to Current 36.7% --------------------------------------------------------------------- Overall Reference Valuation $35.00 Premium to Current 36.6% --------------------------------------------------------------------- Prices As of June 23, 2006. Multiples for Gas Utility (LDC) based on: NWN, KSE, NJR, PNY, WGL, Comparable Transaction Multiples (Aquila sale). Multiples for Transportation & Storage (note: includes CCE Holdings) based on: WMB, KMI, ENB, STR, EP, MMP, KMP, and select comparable transaction multiples (KMI-TER, etc.). Multiples for Midstream Assets based on comparable transaction multiples (OKE, CPNO, etc.). Southern Union Company - Maximizing Value for All Shareholders Valuation: Consistent Stock Price Underperformance - ------------------------------------------------------------------------------- o Despite recent measures, such as the modest cash dividend initiation by the Company, Southern Union continues to trade at a substantial discount to its peer group --------------------------------------------------------- Price/Earnings Multiple Comparison 2006E 2007E 2008E --------------------- SUG Peer Index (a) 16.4x 15.1x 14.0x Southern Union Company (b) 14.1x 13.4x 11.6x --------------------------------------------------------- SUG Discount (multiple) -2.3x -1.6x -2.4x SUG Discount (%) -14.1% -10.9% -17.2% --------------------------------------------------------- o SUG's peers have also consistently offered better shareholder returns --------------------------------------------------------- Total Shareholder Return Over Time 1 Year 2 Year 3 Year --------------------- SUG Peer Index (a) 12.7% 61.3% 90.0% Southern Union Company 9.8% 37.3% 80.6% --------------------------------------------------------- SUG Underperformance -2.9% -24.0% -9.4% --------------------------------------------------------- o While SUG has accumulated a strong portfolio of operating assets which we find extremely attractive, the lack of market recognition of the value remains a source of concern o Ultimately, public investors require not just earnings growth but also optimal recognition of those results Notes: Total Shareholder Return includes dividends and stock appreciation over time. Does not assume dividend reinvestment. Source: Bloomberg. As of June 23, 2006. (a) SUG Peer Index includes: ATG, EP, KMI, NJR, NWN, OKE, WMB. Index is equal-weighted based on consensus estimates. (b) Sandell estimates. Southern Union Company - Maximizing Value for All Shareholders Strategic Initiatives: An MLP Would be Highly Value Accretive - ------------------------------------------------------------------------------- o Potential concerns about upfront tax leakage from the creation of an MLP may reflect excessive caution in this regard o A willingness to hold units in a new partnership would mitigate taxation while the public float would serve as a datapoint to reflect the true value of the contributed assets o An MLP structure would be value accretive for the Company, and we estimate would result in a valuation of $36-$41/share or a 40%-60% premium to the current price -------------------- ------------------------ ---------------------- Begin Asset Transfer => Taking Units in New MLP => Trunkline LNG Could be | to the MLP will Minimize Tax Burden Worth $2 billion in MLP v -------------------- ------------------------ ----------------------- | --------------------- ------------------------ ---------------------- v Public Float Revalues While SUG Holds MLP Acts as High | Assets at <= Other Assets for <= Multiple M&A Vehicle <= v Higher Multiple Potential Transfer and Provides Cash --------------------- ------------------------ ----------------------- | v --------------------- ------------------------ ---------------------- SUG Will Still MLP Provides Balance Enhances Value of SUG => Control All Assets => Sheet Flexibility and => to $36-41 per share Improves Cash Flow --------------------- ------------------------ ----------------------- Notes: Assumes MLP asset transfers done ratably over next four years. Assumes Nov. 2009 CCE 50% Purchase Option exercised. Multiples used for valuation of Gas Utility (LDC) based on: NWN, KSE, NJR, PNY, WGL, Comparable Transaction Multiples (Aquila sale). Multiples used for valuation of Panhandle/Trunkline/CCE Holdings based on: WMB,KMI,ENB,STR,EP, MMP, KMP, Comparable Transaction Multiples (KMI-TER, etc.). Multiples used for valuation of SU Gas Services (formerly Sid Richardson) based on Comparable Transaction Multiples (OKE, CPNO, etc.). Southern Union Company - Maximizing Value for All Shareholders Strategic Initiatives: Sale of LDCs A Critical Step for Long-Term Growth - ------------------------------------------------------------------------------- o While Local Gas Distribution Companies (LDCs) generally are a low-risk, high multiple business, we believe they offer little financial or strategic value for SUG shareholders o The business has a very low organic growth rate which is a mismatch for SUG's core assets o Difficulty achieving authorized returns on equity due to growing bad debt, declining per customer usage, weather sensitivity, etc. o Produce little free cash flow as capital expenditures approximate or exceed depreciation levels o State regulation in challenging jurisdictions has become even tougher with the rise in commodity prices o The sale of the remaining LDCs should provide more balance sheet flexibility and allow SUG to enhance its dividend substantially Southern Union Company - Maximizing Value for All Shareholders Strategic Initiatives: Increase in Dividends Would Raise SUG Profile - ------------------------------------------------------------------------------- o Southern Union's current dividend payout ratio of 22% is not in line with regulated companies which pay out a larger portion of their earnings o As a result the Company does not attract sufficient investor interest from traditional yield-oriented institutions o Without constraining its operations, SUG has the potential to boost dividends significantly and target a payout ratio of 50%-55%. This would allow SUG shareholders to receive a $1.00 per share annual dividend o Based on a current settlement yield of 3.2% such a boost in dividends to shareholders would have the likely effect of attracting greater investor interest in SUG and lifting the Company's stock price materially towards its fair value o Ultimately, if Southern Union is to remain a public company, utility and regulated asset investors demand a more robust payout ratio o There is a strong correlation between valuation multiples and corresponding dividend rates - companies with higher dividends are broadly rewarded with higher P/E ratios o Dividends also provide stability and support for stocks, as well as finally broadening SUG's appeal to all classes of investors Current SUG Dividend Per Share $0.40 Payout Ratio 22.0% Current Share Price $25.63 Current Dividend Yield 1.56% Proposed Dividend Ratio Based on Peer Payout -------------------------------------------- Target Payout Ratio 54.9% Proposed Annual Dividend Per Share $1.00 Group Average Yield for 50%-55% Payout Ratios 3.2% -------------------------------------------------------------- Implied Equity Value Based on Settlement Yield $31.25 -------------------------------------------------------------- Premium to Current 21.9% Southern Union Company - Maximizing Value for All Shareholders Strategic Sale Likely to Realize Greater Upside for Shareholders - ------------------------------------------------------------------------------- o Although Southern Union has significant growth potential in the next few years and we believe the various initiatives highlighted so far would be effective in improving the stock price, value can also be realized through a sale of the Company o We believe the market's improper valuation of SUG is driven largely by a lack of appreciation for the Company's myriad complex assets, and as a result, the Board should also consider whether remaining public with its current asset configuration is optimal for realizing shareholder value o Given the highly strategic nature of SUG's assets and the Company's strong cash flow profile, we believe Southern Union's assets are highly attractive to both strategic and financial investors o Recent data points include the well-received Kinder Morgan deal at 11.9x EBITDA / 20.0x PE o SUG's growth and native cash generation make it an ideal candidate for a buyout o Potential transaction(s) can be structured to minimize tax-related concerns of shareholders ---------------------------------------------------------------- SUG M&A Valuation Multiple Value ---------------------------------------------------------------- Enterprise Value / 2006E EBITDA 11.9 x $45.23 Price / 2006E Earnings 20.0 x $36.35 ----------------------------------------------------------------- Implied Equity Value per share $40.79 Premium to Current 59.1% ----------------------------------------------------------------- Notes: Multiples based on the recently proposed Kinder Morgan, Inc. MBO/LBO offer. Southern Union Company - Maximizing Value for All Shareholders Conclusion: Laying the Roadmap to Creating Shareholder Value - ------------------------------------------------------------------------------- o The Company has assembled a high quality portfolio of energy assets and related growth prospects o However, given the market's consistent failure to recognize the value of these assets, we believe the Board needs to undertake additional measures to improve the realization of value for shareholder including the following steps: o Create a Master Limited Partnership o Sell the remaining LDC properties o Increase dividends to raise appeal to yield seeking investors o Explore a strategic sale and possible buyout of the Company Strategic Initiatives For Value Creation / | \ \ / \ / \ / -------------------- ------------------------ ----------------------- Optimize Business Maximize Asset Value Strategic Conclusion Structure -------------------- ------------------------ ----------------------- --------------------- ------------------------ ----------------------- Sell Remaining LDCs Create MLP Pursue Strategic Alternatives --------------------- ------------------------ ----------------------- | | | \ / \ / \ / --------------------- ------------------------ ----------------------- Repay Debt/ Drop Down Assets Sell Company/ Raise Dividends Over Time "Go Private" --------------------- ------------------------ ----------------------- -----END PRIVACY-ENHANCED MESSAGE-----