Natural Gas Deals Will Keep Coming (ETE, SUG, XOM, CHK, CVX, HK)

Energy

Published: June 16, 2011 8:57 am

Last Updated: June 16, 2011 8:58 am

Deals are aplenty when it comes to the natural gas sector. It is as if the future has been seen and natural gas is going to be in it even if the energy policy of today (or a lack of one) is neutral to natural gas at best.

Energy Transfer Equity, L.P. (NYSE: ETE) and Southern Union Co. (NYSE: SUG ) announced today that the two companies have entered a definitive merger agreement wherein Energy Transfer Equity will acquire Southern Union for $7.9 billion. The transaction price includes transfer of Southern Union’s debt of $3.7 billion to the combined company. The merger gives rise to an integrated midstream company in the natural gas industry.

Unanimously approved by the Boards of Directors of both companies, the merger agreement calls for Southern Union stockholders to receive newly issued Series B Units of Energy Transfer Equity at $33.00 per share, approximately $4.2 billion, in exchange for Southern Union common shares.

Southern Union’s common shares closed at $28.26 on Wednesday, June 15, 2011. Accordingly, the implied $33.00 value of ETE’s Series B Units reflects a 17 percent premium over Southern Union’s closing price. The Series B Units will list on the NYSE and, at $33 per share, are expected to receive an annualized of 8.25% or better.

Exxon Mobil Corporation (NYSE: XOM) stunned the markets when the integrated oil giant made an all-stock acquisition of XTO for some $41 billion. A deal from Chesapeake Energy Corp. (NYSE: CHK) where it acquired Bronco Drilling was hardly a footnote in size. Temasek Holdings Limited, RRJ Capital and Chesapeake Energy Corp. (NYSE: CHK) also signed an agreement to acquire 74.2% stake in Frac Tech Services, LLC from the founders in what was called a recapitalization transaction earlier this year. And Chevron Corporation (NYSE: CVX) made an acquisition of Atlas in 2010.

One company that remains independent and has been speculated as a buyout candidate before is Petrohawk Energy Corporation (NYSE: HK). It has a market capitalization of $7.26 billion and at $23.91 it has a 52-week range of $14.32 to $27.45.

For a source of energy that is currently not so friendly to natural gas, it is amazing to see so many mergers. What is obvious is that the trend points to natural gas whether it is popular today or not.

JON C. OGG

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