BANGALORE Pipeline operator Energy Transfer Equity L.P. (ETE.N) will buy smaller rival Southern Union Co SUG.N for about $4.11 billion to create one of the largest U.S. natural gas pipeline operators amid burgeoning production.
Despite low natural gas prices, production has been rising as energy companies swarm to shale fields -- underground rock formations that contain oil and gas. New exploration technologies are helping them tap into these reservoirs that could meet U.S. fuel needs for a century.
Heavy supplies from shales such as Marcellus in eastern U.S. have also presented opportunities to companies that transport and process gas. A number of midstream companies have already ramped up their services.
The combination of Energy Transfer (ETE) and Southern Union will have over 44,000 miles of gas pipelines and about 30.7 billion cubic feet of transportation capacity per day, Energy Transfer said in a statement.
"The acquisition of Southern Union will give Energy Transfer a larger, more competitive interstate and midstream platform and will add significant demand-driven pipeline assets to the Energy Transfer portfolio," ETE Chairman Kelcy Warren said.
Dallas-based ETE, in March, partnered Regency Energy Partners RGNC.O to buy some natural gas liquids storage and transportation assets from Louis Dreyfus for $1.92 billion.
Southern Union shareholders will swap their common shares for newly issued Series B units of ETE for $33 per share -- a 17 percent premium.
Including about $3.7 billion of Southern Union debt, the deal is valued at $7.81 billion.
ETE said the transaction, expected to close in the first quarter of next year, should immediately add to its distributable cash flow.
From the deal with Southern Union, which owns and operates more than 20,000 miles of pipelines and serves in excess of half a million end-users in Missouri and Massachusetts, ETE expects synergies of about $100 million and one-time savings of $25 million.
Credit Suisse Securities advised ETE on the deal, while Southern Union was advised by Evercore Partners.
Southern Union shares rose 15 percent to $32.50 before the bell on Thursday. The stock had closed at $28.26 on Wednesday on the New York Stock Exchange.
Energy Transfer units closed at $42.47 on Wednesday on the same exchange.
(Reporting by Krishna N Das in Bangalore; Editing by Joyjeet Das)