BANGALORE A 16 percent jump in Houston-based Southern Union Co's SUG.N shares on Friday suggests investors expect further bidding activity to win the owner of more than 20,000 miles of U.S. gas pipelines.
Rival pipeline operator Energy Transfer Equity L.P. (ETE.N) insists that its tax-deferred $4.1 billion offer for Southern Union is better than Williams Companies Inc's (WMB.N) $4.9 billion cash bid.
As natural gas prices remain depressed, and gasoline prices stay high, pipeline companies are scrambling to increase their capacity to transport gas from shale fields to customers.
Southern Union owns and runs pipelines in the U.S. Southeast, Midwest and Great Lakes regions, as well as in Texas and New Mexico.
Southern Union shares jumped 16 percent to a life high of $39.60 in hectic early Friday trading, topping Williams' $39 a share bid price and well above the $33 a share offered by Energy Transfer earlier this month. Over 2 million Southern Union shares were traded, more than double normal daily volumes.
Tulsa, Oklahoma-based Williams, an integrated natural gas company valued at about $17 billion, entered the bidding on Thursday, offering 18 percent more than Energy Transfer's earlier bid.
Dallas, Texas-based Energy Transfer, however, countered by insisting its offer -- a deal that would make it one of the largest U.S. natural gas pipeline companies -- was better.
"The Williams proposal does not have committed financing, may have negative ratings consequences for Southern Union, is subject to completion of due diligence and may have material anti-trust regulatory challenges," Energy Transfer said in a statement late on Thursday.
It stressed, too, that its own offer is a "tax deferred structure that provides Southern Union shareholders significant potential upside." Being a master limited partnership, Energy Transfer does not have to pay corporate income tax.
"Energy Transfer could pay nearly $42 a share ...," Raymond James analysts Darren Horowitz and Kevin Smith wrote in a note.
"The plot thickens ...," wrote Tudor, Pickering, Holt & Co, adding "Energy Transfer likely struggles to match the all-cash offer, but could counter-bid with partial cash option."
"Very interesting game," said Jerry Swank, managing partner at Swank Energy Income Advisors, which at end-March had a 0.54 percent stake in Energy Transfer.
"I don't think you can rule out a higher offer from Energy Transfer. It obviously believes its tax-deferred offer is worth more than the $33 face value. I think the Southern Union team likes the Energy Transfer deal, but it's impossible to predict how this will play out," he said.
Vicki Granado, a spokeswoman for Energy Transfer, declined to comment when asked if it would come back with a higher offer.
Southern Union said it would review the Williams proposal.
(Reporting by Krishna N Das in Bangalore; Editing by Ian Geoghegan)