 Energy
Transfer Equity, L.P. Acquisition of Southern Union Company
Investor
Presentation
–
November
21,
2011
Filed by Energy Transfer Equity, L.P.
pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 under the
Securities Exchange Act of 1934
Subject Company: Southern Union Company
Commission File No.: 1-06407 |
 2
Legal Disclaimer
This presentation may contain statements about future events, outlook and
expectations of Energy Transfer Equity, L.P. (ETE), Energy Transfer Partners, L.P.
(ETP), Regency Energy Partners LP (RGP), and Southern Union Company (SUG)
(collectively, the “Companies”), all of which are forward-looking statements.
Any statement in this presentation that is not a historical fact
may be deemed to be a forward-looking statement. These
forward-looking statements rely on a number
of
assumptions
concerning
future
events
that
are
believed
to
be
reasonable,
but
are
subject
to
a
number
of
risks,
uncertainties
and
other
factors,
many
of
which are outside the Companies’
control, and which could cause the actual results, performance or achievements of
the Companies to be materially different. Among those is the risk that
conditions to closing the transaction are not met or that the anticipated benefits from the proposed transaction cannot be realized.
While the Companies believe that the assumptions concerning future events are
reasonable, we caution that there are inherent difficulties in predicting certain
important factors that could impact the future performance or results of our
businesses. These risks and uncertainties are discussed in more detail in the filings
made by the Companies with the Securities and Exchange Commission, copies of which
are available to the public. The Companies expressly disclaim any intention
or obligation to revise or publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.
The
U.S.
federal
income
tax
consequences
to
a
SUG
shareholder
of
the
merger
and
of
owning
and
disposing
of
ETE
common
units
received
in
the
merger
are
complex.
SUG
shareholders
should
consult
their
own
tax
advisors
regarding
the
U.S.
federal
income
tax
consequences
applicable
to
them
in
light
of
their
particular circumstances. For a more detailed discussion of the material U.S.
federal income tax consequences to SUG shareholders of the merger and of
ownership and disposition of ETE common units received in the merger, please see
the definitive proxy statement / prospectus filed with the SEC. All
references in this presentation to capacity of a pipeline, processing plant or storage facility relate to maximum capacity under normal operating conditions and,
with
respect
to
pipeline
transportation
capacity,
are
subject
to
multiple
factors
(including
natural
gas
injections
and
withdrawals
at
various
delivery
points
along
the pipeline and the utilization of compression) which may reduce the throughput
capacity from specified capacity levels. Additional Information
A definitive proxy statement / prospectus has been sent to stockholders of SUG
seeking their approval of the transaction. Investors and security holders may
obtain a free copy of the definitive proxy statement / prospectus and other
documents filed by ETE and SUG with the SEC at the SEC’s website, www.sec.gov.
The definitive proxy statement / prospectus and such other documents relating to
ETE may also be obtained free of charge by directing a request to Energy
Transfer Equity, L.P., Attn: Investor Relations, 3738 Oak Lawn Avenue, Dallas,
Texas 75219, or from ETE’s website, www.energytransfer.com. The definitive
proxy
statement
/
prospectus
and
such
other
documents
relating
to
SUG
may
also
be
obtained
free
of
charge
by
directing
a
request
to
Southern
Union
Company,
Attn:
Investor
Relations,
5051
Westheimer
Road,
Houston,
Texas
77056,
or
from
SUG’s
website,
www.sug.com.
Investors
and
security
holders
are
urged
to
carefully read the proxy statement / prospectus and such other documents filed with
the SEC because the materials contain important information regarding ETE,
SUG and the transaction.
ETE,
SUG
and
their
respective
directors
and
executive
officers
may,
under
the
rules
of
the
SEC,
be
deemed
to
be
“participants”
in
the
solicitation
of
proxies
in
connection
with
the
proposed
transaction.
Information
concerning
the
interests
of
the
persons
who
may
be
“participants”
in
the
solicitation
set
forth
in
the
definitive proxy statement / prospectus. |
 3
SUG Transaction Update
Review of the final transaction structure
-
Southern Union Company (“SUG”) shareholders may elect $44.25 in cash or
1.00 Energy Transfer Equity, L.P. (“ETE”) common unit per SUG
common share -
Election subject to proration so that aggregate consideration will be a maximum of
60% cash or up to a maximum of 50% ETE common units
-
Implies
$42.20
per
share
of
SUG
common
stock,
assuming
40%
unit
consideration,
based
on
ETE’s
closing
price
on
November
18,
2011
(1)
,
a
49.3%
premium
to
the
unaffected
SUG
closing
price
on
June
15,
2011
$3.7 billion committed acquisition financing to fund cash consideration is fully
syndicated Regulatory approval is on track
-
Only Missouri Public Service Commission (“MPSC”) approval remains
-
ETE
and
SUG
are
parties
to
a
pending
joint
application
before
the
MPSC,
requesting
an
order
authorizing
SUG
to
take
certain
actions
to
allow
ETE
to
acquire
the
equity
interests
of
SUG.
-
FERC
approval
already
received;
the
waiting
period
applicable
to
the
merger
under
HSR
has
expired
Expected timeline
-
SUG to hold a Special Meeting of Shareholders entitled to vote on the merger
transaction on December 9, 2011 -
Approval
by
the
stockholders
of
SUG
as
of
October
11
th
record
date
-
Targeting Q1 2012 closing upon receipt of MPSC approval
Institutional
Shareholder
Services
and
Egan-Jones
Proxy
Services
are
both
advising
SUG
shareholders
to
vote
FOR
the
merger
on December 9th based on the following:
-
The significant premium to SUG shareholders
-
The
negotiations
by
SUG
which
resulted
in
a
34%
increase
in
value
to
shareholders
and
a
price
significantly
higher
than
Southern
Union's
all-time
high
trading
price
prior
to
the
initial
announcement
of
the
merger
-
The flexibility to elect cash or units
(1)
Adjusted for approximately 13.4% equity pre-election by certain SUG
insiders. |
 Florida
Gas Transmission Panhandle Eastern Pipeline
Trunkline Gas
Sea Robin Pipeline
Southern Union Gas Services
Missouri Gas Energy
New England Gas Company
Storage
Trunkline LNG
Southern Union assets
ETP natural gas pipelines
Lone Star pipeline
RGP pipelines
RGP gathering system
Lone Star fractionation/processing facility
Lone Star storage facility
RGP treating/processing facility
Gas hub
Processing
Storage
Treating
ETE-controlled assets
Gas basins
Combined Asset Footprint
Note:
Excludes PEI Power.
Energy
Transfer
(1)
SUG
Combined
Miles of Natural Gas Pipeline
23,589
21,169
44,758
Natural Gas Throughput (Bcf/d)
22.1
8.6
30.7
Natural Gas Storage (Bcf)
74
109
184
Natural Gas Processing Capacity (Bcf/d)
1.4
0.5
1.9
Note:
Figures include only proportional share of partially owned assets.
(1)
Includes ETP, RGP and Lone Star JV.
The combination of SUG
with ETE creates an integrated platform for future growth
|
 5
ETE’s pro forma cash flows will be generated through its ownership interests
in Energy Transfer Partners, L.P. (“ETP”), SUG and Regency Energy
Partners LP (“RGP”) -
ETE will receive stable, growing distributions through its limited partner
interests (estimated 22.5% of ETP’s common units outstanding, 16.7% of
RGP’s common units outstanding), general partner interests and incentive
distribution rights (“IDRs”) in ETP and RGP
-
Future cash distribution increases to ETP and RGP unitholders increase
distributable cash flow to ETE through its ownership of general partner
interests and IDRs in ETP and RGP -
Newly issued ETP and RGP common units increase distributable cash flow at ETE given
the required payment of the general partner interest and IDR for each newly
issued unit -
Distributions from SUG will increase ETE distributable cash flows
$110
$333
$420
$494
$485
$489
FY2006
FY2007
FY2008
FY2009
FY2010
LTM 9/30/11
2006 - 2010 CAGR: 44.9%
ETE Distributable Cash Flow
Key Drivers for ETE Distributions for 2012 and Beyond
Consolidated Energy Transfer family has announced ~$3.5 billion in future growth
projects in key producing regions since January 1, 2011
Eagle Ford shale projects
2010 -
2014
FEP demand fee ramp-up
1Q 2011
LDH Energy acquisition (Lone Star)
2Q 2011
Tiger Pipeline demand fee ramp-up
3Q 2011
ETP NGL pipeline
3Q 2011
Tilden Treating Facility expansion
4Q 2011
SUG acquisition
1Q 2012
XTO pipeline agreement
4Q 2012
Lone Star NGL fractionator
1Q 2013
Lone Star NGL pipeline
1Q 2013
Red Bluff project
2Q 2013
Eagle Ford expansion
2014
Pro Forma ETE Overview
Future
Growth |
 6
01/01/09
09/18/09
06/10/10
02/28/11
11/18/11
60
80
100
120
140
160
180
200
220
240
260
280
300
320
340
360
ETE
S&P 500
Alerian MLP Index
$1.25
$1.64
$2.04
$2.16
$2.16
$2.50
FY2006
FY2007
FY2008
FY2009
FY2010
LTM 9/30/11
2006 - 2010 CAGR: 14.7%
ETE Distribution Growth
Relative ETE –
Total Return
109%
185%
35%
Source:
FactSet Research Systems.
Since January 2009, ETE unitholders have experienced total returns of 185%
ETE Relative Performance
Note:
Distributions
annualized
based
on
distribution
rate
during
the
last
quarter
of
each
period. |
 7
Attractive, immediate financial impact for SUG shareholders
-
Flexibility for shareholders to elect cash or ETE common units
Future growth potential is not fully reflected in current ETE unit price
-
Ability to defer tax for SUG shareholders receiving ETE common units
-
Increase
in
annualized
dividend
yield
from
2%
to
6.7%
(1)
ETE distributions for 2012 and 2013 benefit from a substantial tax shield
Enhanced long-term position as this transaction combines SUG’s attractive
end-user position in major energy-consuming markets with Energy
Transfer’s unique asset footprint proximate to major natural gas
producing basins -
The
asset
overlap
of
the
Energy
Transfer
family
with
SUG
creates
a
one-of-a-kind
platform
that
maximizes future growth opportunities
A significant cash component, highly compelling equity participation and certainty to
close (1)
Based
on
annualized
quarterly
distribution
announced
on
10/25/11
of
$0.625
per
unit
and
the
closing
unit
price
of
$37.56
as
of
November
18,
2011
as
compared
to
the
current
SUG
quarterly dividend of $0.15 per share.
Benefits to SUG Shareholders |
 8
Consideration Mechanism
SUG
shareholder
election on a per
share basis
$44.25 of cash per SUG
common share
1.00 ETE common unit
per SUG common share
Subject to proration if >60% of the SUG shareholders on a per
share basis elect to receive cash
Committed pre-election of ETE common units means that more
cash available for other holders (74% cash / 26% units)
Each SUG shareholder may elect to receive $44.25 cash or 1.00 ETE common unit on a
per share basis Total mix of consideration dependent upon election of SUG
shareholders Shareholder election
Outcome dependent upon aggregate election of SUG shareholders
Subject to proration if >50% of the SUG shareholders on a per
share basis elect to receive ETE common units
Approximately 13.4% of the equity consideration has already
been pre-elected by certain SUG insiders
Committed pre-election of ETE common units is subject to
proration if more holders want ETE common units
A compelling proposition for all SUG shareholders |
 9
$37.00
$38.00
$39.00
$40.00
$41.00
$42.00
$43.00
$44.00
$45.00
7/19/11
7/31/11
8/12/11
8/24/11
9/5/11
9/18/11
9/30/11
10/12/11
10/24/11
11/5/11
11/18/11
Implied SUG share price
Dow Jones Industrial Average
Look Through Value Since Announcement
$42.20
Source:
FactSet Research Systems.
(1)
Based
on
60%
cash
and
40%
units
for
all
shareholders,
adjusting
for
approximately
13.4%
equity
pre-election
by
certain
SUG
insiders.
(2)
Indexed to the implied SUG share price as of 7/19/11.
(1)
(2)
Compelling value proposition with current yield, future distribution growth and unit
price appreciation |
 10
Large, diversified assets well positioned in markets
Upon closing, consolidated Energy Transfer family will have an enterprise value of
~$40 billion (1)
Pro forma for the transaction, the consolidated Energy Transfer family will own
and operate ~45,000 miles of intrastate and interstate natural gas
pipelines in addition to complementary midstream assets -
Interstate and midstream operations provide enhanced ability to service customer
needs from gathering, processing, fractionation, storage and
transportation Connects prolific natural gas producing areas with multiple
end use markets Investment Considerations
Large Diversified
Asset Base
Strong
Balance Sheet
Committed to maintaining a strong balance sheet
Management
commitment
to
investment-grade
metrics
at
ETP,
SUG
and
RGP
Track record of maintaining a strong liquidity position
Proven ability to raise equity capital (over $3.5 billion over the last three
years) Stable
Cash Flows
Stable asset base and cash flow profile
Significant fee-based operating income and long-lived assets
High-quality customer base with strong credit profile
Hedge positions provide for further cash flow stability in commodity price
sensitive areas Well
Managed
Growth
Profile
Well-managed organic growth projects
Low-risk, high-return projects supported by long-term customer
contracts Demonstrated ability to construct and place into service pipelines
on-time / on-budget Seek growth projects that connect to existing
infrastructure thereby enhancing hydraulic efficiencies (1)
Based
on
ETP,
RGP
and
ETE
closing
prices
as
of
November
18,
2011;
units
outstanding
and
debt
balances
as
of
9/30/2011,
pro
forma
for
units
and
debt
issued
in
connection
with
the
acquisition
of
SUG and the recent ETP equity offering.
The
ETE
/
SUG
transaction
provides
a
significant
cash
component
to
SUG
shareholders,
highly
compelling equity participation and certainty to close
|
 11
Appendix |
 12
Energy Transfer Equity, L.P.
(NYSE: ETE)
Market cap
(1)
: $10,298
Enterprise value
(1)
: $18,322
Corporate rating: BB-
/ Ba1
Regency Energy Partners LP
(NYSE: RGP)
Market cap
(2)
: $3,716
Enterprise value
(2)
: $5,615
Corporate rating: BB / Ba3
Energy Transfer Partners, L.P.
(NYSE: ETP)
Market cap
(1)(2)
: $15,256
Enterprise value
(1) (2)
: $23,751
Corporate rating: BBB-
/ Baa3
Midstream
Interstate Transportation
Intrastate Transportation & Storage
70%
30%
Contract Compression
Transportation
Gathering & Processing
Southern Union Company
Corporate rating: BBB-
/ Baa3
Citrus
(3)
LDCs
Panhandle Companies
SUGS
50%
Lone Star NGL LLC
Ownership in RGP
100% RGP IDRs
General Partner Interest
26.3mm LP units (16.7% of total)
Ownership in ETP
100% ETP IDRs
General Partner Interest
50.2mm LP units (22.5% of total)
Ownership in SUG
100% SUG Shares
Pro Forma Organizational Structure
($ in millions)
Note:
Market capitalizations as of November 18, 2011.
(1)
Pro forma for SUG, Citrus and APU transactions.
(2)
Includes implied GP value based on current GP cash flows capitalized at the current
LP distribution yield. (3)
See Appendix for description of Citrus merger, planned to be effective immediately
prior to ETE’s acquisition of SUG. |
 13
ETP / RGP / Lone Star Segments Overview
Energy Transfer Partners, L.P.
More than 17,500 mi of natural gas gathering and transportation pipelines,
3 natural gas storage facilities with 74 Bcf of working capacity
and a retail
propane business serving 1.2 million customers
Intrastate Transportation and Storage
-
Oasis Pipeline (600 mi, 1.2 Bcf/d capacity west-to-east, 750 MMcf/d
capacity east-to-west)
-
East Texas Pipeline (370 mi)
-
Energy Transfer Fuel System (2,600 mi, total capacity of 5.2 Bcf/d)
-
Bethel storage facility (6.4 Bcf working capacity), Bryson storage
facility (6.0 Bcf working capacity), Godley plant
-
HPL System (4,100 mi, total capacity of 5.5 Bcf/d)
-
Bammel storage facility (62 Bcf working capacity)
Interstate Transportation
-
Transwestern Pipeline
-
2,700 mi; 1,225 MMcf/d mainline capacity and 1,610 MMcf/d San
Juan Lateral capacity
-
Tiger Pipeline
-
175 mi, 42-inch pipeline; 2.4 Bcf/d of capacity sold under 10-15 year
agreements; 100% contract demand from January 2012 through
December 2012
-
Expansion completed in August 2011
-
FEP Pipeline Joint Venture
-
50/50 joint venture with KMP
-
185 mi, 42-inch pipeline; initial capacity of 2.0 Bcf/d with 1.85 Bcf/d
sold under 10-12 year agreements; ~90% contract demand through
December 2012
Midstream
-
~7,000 mi of natural gas gathering pipelines
-
3 natural gas processing plants
-
17 natural gas treating facilities
-
10 natural gas conditioning plants
-
More than $1.25 billion of new Eagle Ford Shale growth projects since
October 2010
Retail Propane
-
Entered into an agreement to contribute propane operations to
AmeriGas Partners LP (“APU”) in exchange for $2.9 billion of cash and
APU common units
Regency Energy Partners LP
Gathering and Processing
-
North Louisiana (442 mi, 4 plants)
-
Mid-Continent (3,470 mi, 1 plant)
-
South Texas (541 mi, 2 plants)
-
West Texas (806 mi, 1 plant)
Transportation
-
49.99% of the Regency Intrastate Gas System (“RIGS”) (450 mi)
-
50% of MEP
-
500 mi, 1.8 Bcf/d capacity in Zone 1 and 1.2 Bcf/d capacity in Zone 2
Contract Compression
-
Fleet of compressors used to provide turn-key natural gas compression
services for customer specific systems
Contract Treating
-
Fleet of equipment used to provide treating services, such as carbon
dioxide and hydrogen sulfide removal, natural gas cooling, dehydration
and BTU management, to natural gas producers and midstream pipeline
companies
Source:
Company filings.
Lone Star NGL LLC Joint Venture
Joint venture owned 70% by ETP and 30% by RGP; ETP operates on
behalf of the joint venture
-
Stand-alone entity with equal board representation
NGL Storage
-
Mont Belvieu storage facility (43
million Bbls working capacity)
-
$390 million fractionator project expected to be in-service Q1 2013
-
Hattiesburg storage facility (3.9 million Bbls working capacity)
NGL Pipeline Transportation
-
West Texas NGL Pipeline (1,066 mi, 144,000 Bbls/d working capacity)
-
$917 million West Texas Gateway Project estimated to be in-service Q1
2013
NGL Fractionation & Processing
-
2 cryogenic processing plants
-
25,000 Bbls/d fractionator
-
Sea Robin gas processing plant |
 14
ETE
and
ETP
are
party
to
an
agreement
and
plan
of
merger
whereby
a
SUG
subsidiary
which
indirectly
holds
SUG's
50% interest in Citrus Corp., the owner of Florida Gas Transmission Company, LLC
(“FGT”), will be merged with and into an ETP subsidiary
-
The consideration to be received by ETE related to the Citrus merger is
approximately $1.9 billion in cash and approximately $105 million in ETP
units -
FGT is a 5,500 mile interstate pipeline with a throughput capacity of 3.2
Bcf/d -
The transaction is expected to close immediately prior to the ETE / SUG
closing The transaction will provide multiple strategic advantages to
ETP -
Citrus is a premier pipeline providing access to the strong and growing Florida
market -
Expands
ETP's
fast
growing
Interstate
Transportation
segment
and
adds
significant
demand-side
market-centric
pipelines to ETP's asset portfolio
-
Significantly increases fee-based revenue and long-term contracts supported
by high credit quality customers This transaction has been approved by the
Conflicts Committees of ETE and ETP -
There are no financing contingencies
-
No ETP unitholder vote is required
ETP expects to fund the transaction with financings that are consistent with its
commitment to maintaining investment grade credit metrics
Approximately $1.45 billion of cash proceeds will be used to repay a substantial
portion of the acquisition financing incurred
by
ETE
to
fund
the
cash
consideration
to
be
paid
to
SUG
shareholders
(the
remaining
$445
million
in
cash
proceeds will be used to repay debt of SUG)
The transaction has been structured to defer any tax gain realization
Overview of Citrus Transaction |