Southern Union (SUG) faces a battle with its largest shareholder, Sandell Asset Management, which owns 9.2%. In a June 26 letter to Southern CEO George Lindemann, filed with the Securities & Exchange Commission, Sandell CEO Thomas Sandell said the company should be sold because it is way undervalued. The stock jumped from 25 to 27 on the news and now trades at 26.56. The company stores and distributes natural gas. It owns 10,000 miles of pipeline that move gas from Texas, Oklahoma, and the Gulf of Mexico to the Great Lakes region. "Based on its undervalued assets and what may happen because of Sandell, we have a price target of 40," says Benjamin Segal of Winchester Capital Advisors, which owns shares. He says Lindemann, who controls 16% of the stock, should address the low valuation. It trails its peers and trades below its intrinsic value of at least 35, says Segal. Sandell says that, in the meantime, Southern should put its pipelines in a master limited partnership that doesn't pay tax. Calls to Southern Union were not returned.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial