Southern Union Bid War: Williams Vs. Energy Transfer
The United States is heading into a boom period for natural gas thanks to the recent discovery of shale gas reserves. New hydraulic fracturing technology is giving companies access to oil and gas reserves once thought to be unreachable. Domestic and international companies are scrambling to buy up as much shale land as possible, but there’s a crucial link in the natural gas supply chain that has also drawn much attention. With the shale boom will come the need for increased pipeline capacity to move the abundant natural gas from place to place. Southern Union Company owns and/or operates over 15,000 miles of natural gas pipelines throughout the American Midwest and southern states, and summer 2011 has seen a heated bidding war arise as pipeline companies Energy Transfer and Williams compete to acquire Southern Union.
Initially, Energy Transfer Equity announced a planned merger with Houston-based Southern Union on June 16. The company offered $7.9 billion, which included roughly $3.7 billion of existing Southern Union debt, equating to $33.00 per share and $4.2 billion. The deal was unanimously approved by the board of directors of both companies and would have created the largest natural gas pipeline company in the U.S.
Enter Williams, another natural gas pipeline company with its eyes on Southern Union’s assets. On June 23, Williams proposed to acquire all of Southern Union’s outstanding shares for $39 per share for a total enterprise value of $8.7 billion. The company’s all-cash proposal represented a premium of 18 percent over the nominal purchase price of Energy Transfer’s bid.
"Williams' proposal is compelling for both Southern Union and Williams investors," says Williams President and Chief Executive OfficerAlan Armstrong. "Our proposal provides significantly greater value to all Southern Union shareholders than they would receive from Energy Transfer and a path to realize such premium value that is more transparent, more expedient and more certain.
"We are confident the combination will further strengthen our ability to deliver value and growth from an extraordinary suite of energy-infrastructure assets. The two asset portfolios are complementary and strategically positioned in growing supply areas, including key shale basins, and end-use markets.”
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Energy Transfer came back at Williams, claiming that the Williams bid was highly conditional. The Williams bid was not tax-deferred as was Energy Transfer’s, and both Barclays Capital and Citi estimated that post-merger Energy Transfer stock could rise to $53.00 from $45.57 as of June 23, 2011. Williams’ bid may also face anti-trust regulatory challenges.
Just to be safe, Energy Transfer went ahead and amended its bid, offering Southern Union $8.9 billion, including $5.1 billion in cash and Energy Transfer Equity common units.
Not to be outdone, Williams upped the ante and offered $44.00 per share in cash, for a total enterprise value of $9.4 billion.
Energy Transfer responded with $9.4 billion, including $5.7 billion in cash and common units (with cash not to exceed 60 percent of the aggregate). Under the revised bid, Southern Union shareholders could elect to exchange their common shares for $44.25 of cash each or one Energy Transfer Equity common unit. The bid was unanimously approved by both companies’ board of directors.
"Our ability to be creative with our structure has improved the tax efficiency, therefore allowing us to increase our price," said Kelcy Warren, Energy Transfer Equity's Chairman of the Board of Directors and largest unitholder. "This is simply a superior transaction with upside potential and the ability to close on an expedited basis. The terms of this revised agreement demonstrate our commitment to executing this transaction."
Chairman and CEO of Southern Union George L. Lindemann says, "This revised merger agreement provides our shareholders with superior value, greater certainty to close, and unrivalled strategic benefits that could not be achieved through any other industry combination."
Vice Chairman, President and COO of Southern Union Eric D. Herschmann added, "We have negotiated the most compelling transaction for Southern Union shareholders, both in terms of immediate cash value and potential upside of the combined companies through long-term equity ownership in Energy Transfer Equity."
On July 29, Energy Transfer Equity and Southern Union announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976—a law requiring a one month review period prior to the completion of a merger or acquisition in which the Federal Trade Commission and Antitrust Division of the Department of Justice can ensure that the merger doesn’t violate U.S. antitrust laws.
With the antitrust hurdle overcome and both boards of directors satisfied, it looks like Energy Transfer has clinched the deal. This back and forth bidding war will end in a landmark merger in the natural gas sector, and with Energy Transfer on top, it is likely the U.S. will see the formation of a new pipeline king!
Ofwat allows retailers to raise prices from April
Retailers can recover a portion of excess bad debt by temporarily increasing prices from April 2022, according to an Ofwat statement.
The regulator confirmed its view that levels of bad debt costs across the business retail market are exceeding 2% of non-household revenue, thereby allowing "a temporary increase" in the maximum prices. Adjustments to price caps will apply for a minimum of two years to reduce the step changes in price that customers might experience.
Measures introduced since March 2020 to contain the spread of Covid-19 could lead to retailers facing higher levels of customer bad debt. Retailers’ abilities to respond to this are expected to be constrained by Ofwat strengthening protections for non-household customers during Covid-19 and the presence of price caps.
In April last year, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of non-household revenue.
Georgina Mills, Business Retail Market Director at Ofwat said: “These decisions aim to protect the interests of non-household customers in the short and longer term, including from the risk of systemic Retailer failure as the business retail market continues to feel the impacts of COVID-19. By implementing market-wide adjustments to price caps, we aim to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition.”
There are also three areas where Ofwat has not reached definitive conclusions and is seeking further evidence and views from stakeholders:
- Pooling excess bad debt costs – Ofwat proposes that the recovery of excess bad debt costs is pooled across all non-household customers, via a uniform uplift to price caps.
- Keeping open the option of not pursuing a true up – For example if outturn bad debt costs are not materially higher than the 2% threshold.
- Undertaking the true up – If a 'true up' is required, Ofwat has set out how it expects this to work in practice.
Further consultation on the proposed adjustments to REC price caps can be expected by December.
"While it’s great that regulators are helping the industry deal with bad debt in the wake of the pandemic, raising prices only treats the symptoms. Instead, water companies should head upstream, using customer data to identify and rectify the causes of bad debt, stop it at source and help prevent it from occurring in the first place," she said.
"While recouping costs is a must, water companies shouldn’t just rely on the regulator. Data can help companies segment customers, identify and assist customers that are struggling financially, avoiding penalising the entire customer in tackling the cause of the issue."
United Utilities picks up pipeline award
A race-against-time plumbing job to connect four huge water pipes into the large Haweswater Aqueduct in Cumbria saw United Utilities awarded Utility Project of the Year by Pipeline Industries Guild.
The Hallbank project, near Kendal, was completed within a tight eight-day deadline, in a storm and during the second COVID lockdown last November – and with three hours to spare. Principal construction manager John Dawson said the project helped boost the resilience of water supplies across the North West.
“I think what made us stand out was the scale, the use of future technology and the fact that we were really just one team, working collaboratively for a common goal," he said.
Camus Energy secures $16m funding
Camus Energy, which provides advanced grid management technology, has secured $16 million in a Series A round, led by Park West Asset Management and joined by Congruent Ventures, Wave Capital and other investors, including an investor-owned utility. Camus will leverage the operating capital to expand its grid management software platform to meet growing demand from utilities across North America.
As local utilities look to save money and increase their use of clean energy by tapping into low-cost and low-carbon local resources, Camus' grid management platform provides connectivity between the utility's operations team, its grid-connected equipment and customer devices.