Bloomberg News

Southern Union Investors Sue to Block Energy Transfer Buyout

June 29, 2011

(Updates with buyout offer details in fourth paragraph.)

June 29 (Bloomberg) -- Southern Union Co., a natural-gas pipeline operator that is the target of buyout offers, was sued by investors who contend they aren’t getting enough for their shares in a $4.2 billion bid by Energy Transfer Equity LP.

Executives of Houston-based Southern Union didn’t properly shop around for higher bids for the energy company and structured the Energy Transfer deal in a way to discourage other offers, officials of KBC Asset Management NV, a Southern Union investor, said in suit filed in Delaware today.

“The company’s public shareholders will not receive adequate or fair value for their Southern Union common stock,” under Energy Transfer’s bid, lawyers for the fund said in the Delaware Chancery Court suit. Investors would get partnership units worth $33 each under the offer.

The suit comes almost a week after Tulsa, Oklahoma-based Williams Cos., another natural-gas provider, made an unsolicited $4.86 billion all-cash bid for Southern Union. The offer values Southern Union at $39 a share. That’s $6 a share, or about $750 million, more than the June 16 sale price announced by Southern Union and Energy Transfer.

Energy Transfer’s officials said yesterday Southern Union directors are violating the buyout agreement by discussing the bid with Williams’s executives. Southern Union said they aren’t breaching the contract with the talks, according to a filing with the U.S. Securities and Exchange Commission.

Gas Pipelines

John Barnett, a Southern Union spokesman, didn’t immediately return calls for comment today on the shareholder suit.

Southern Union operates pipelines that move natural gas from Texas to Florida and the Midwest, and owns a gas- liquefaction plant in Louisiana that is seeking federal permission to export the furnace and power-plant fuel.

Williams, which wants to use Southern Union’s lines to connect to new sources of natural gas in the Permian Basin and Granite Wash fields in Texas and Oklahoma, said its offer isn’t subject to a financing contingency. Energy Transfer’s offer calls for it to issue new units and exchange them for existing Southern Union shares.

Lawyers for the KBC fund contend that Southern Union’s board is backing Energy Transfer’s bid in part because the offer “provides substantial benefits” to some of the company’s managers, including Chief Executive Officer George Lindemann and Chief Operating Officer Eric Herschmann.

Other Perks

The pair stand to each get five-year consulting agreements worth $50 million that come with other perks, such as use of private jets and accelerated vesting of stock options, the suit said.

Those payments are “gratuitous and offer no legitimate benefits to shareholders of Southern Union or ETE,” the fund’s lawyers said.

KBC’s suit seeks to have a Delaware judge block the Energy Transfer deal so Southern Union investors can seek more for their shares, according to the complaint.

Southern Union also has been sued by the Southeastern Pennsylvania Transportation Authority and two Florida pension funds over the Energy Transfer offer.

Septa, which operates trains and buses in the Philadelphia area, along with the North Miami Beach General Employees Retirement Plan and City of North Miami Beach Police Officers & Firefighters Retirement plan, filed suit in Delaware Chancery Court June 27 to challenge the deal. A similar suit also has been filed in state court in Houston.

The KBC suit is KBC Asset Management NV v. Southern Union Co., 6622, Delaware Chancery Court (Wilmington.) The Septa suit is Southeastern Pennsylvania Transportation Authority v. Southern Union Co., 6615, Delaware Chancery Court (Wilmington.)

--With assistance from Mike Lee in Dallas, Joe Carroll in Chicago and Zachary Mider and Jim Polson in New York. Editors: Glenn Holdcraft, Michael Hytha

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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