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* Backs $4.1 bln deal with Energy Transfer for now
* Says not talking to Williams may amount to breach of fiduciary duties
* Williams says will look to quickly execute a definitive merger agreement (Adds Williams comment; updates shares)
By Krishna N Das
BANGALORE, June 28 (Reuters) - Pipeline operator Southern Union , the target of a $4.9 billion takeover bid from Williams Companies Inc , said it planned to discuss the proposal with Williams, but it still favored an earlier $4.1 billion bid from rival Energy Transfer Equity LP .
Williams, an integrated natural gas company, last week made an unsolicited $39 a share bid for Southern, trumping the $33 a share offer from Energy Transfer. Williams' offer price is 38 percent higher than Southern stock's closing on June 15 -- a day before Energy Transfer unveiled its bid.
Both the suitors have called their proposal superior, and have shot off letters to Southern claiming the same.
Dallas-based Energy Transfer had said their merger agreement barred Southern from talking with Williams, but Southern said in a regulatory filing on Tuesday that a failure to negotiate with Williams may amount to a breach of its fiduciary duties.
Tulsa, Oklahoma-based Williams welcomed the move, and said later on Tuesday it will look to "quickly execute a definitive merger agreement", adding the company could close a deal "on a timeline consistent with proposed Energy Transfer transaction."
Energy Transfer had expected its deal to close by early next year.
Houston-based Southern's decision to hold discussions with Williams is expected to be countered by Energy Transfer. Vicki Anderson Granado, a spokeswoman for Energy Transfer, declined to say what the company's next move would be.
"The (Southern) board's determination does not mean that it has determined that the Williams proposal currently constitutes a superior offer as defined in the merger agreement," Southern said in a regulatory filing.
Southern also added: "At this time, the board reaffirms its recommendation of the merger agreement (with Energy Transfer)."
If the Energy Transfer deal is successful, Southern Chief Executive George Lindemann and Chief Operating Officer Eric Herschmann will receive about $50 million each over five years through consulting agreements. Along with their families, they own nearly 13.5 percent of Southern shares.
Southern spokesman John Barnett did not immediately respond to a call seeking additional details.
Southern Union owns and operates more than 20,000 miles of U.S. gas pipelines in the Southeast, Midwest and Great Lakes regions, as well as in Texas and New Mexico.
Southern Union shares have consistently traded above the $39 mark since Williams unveiled its offer on Thursday. The stock inched up marginally to $39.74 in afternoon trade on Tuesday on the New York Stock Exchange. (Reporting by Krishna N Das in Bangalore; Editing by Sriraj Kalluvila)