Williams lifts bid for Southern Union to $5.5bn

Williams, the US natural gas group, has intensified the battle over Southern Union, increasing its cash offer for the pipeline operator in a bid to see off rival buyer Energy Transfer Equity, another owner of midstream assets.

Oklahoma-based Williams on Thursday increased its offer by about 13 per cent, proposing to pay $44 a share for Southern, valuing the company at $9.4bn including debt.

Southern Union shares rose 4.71 per cent in early trading to $43.56 a share. The latest offer values the company’s equity at about $5.5bn. Williams shares rose 1.63 per cent to $29.26.

The move came about a week after ETE and Southern Union revised their original agreement, with ETE increasing its offer for the pipeline company from $33 a share to $40 a share. ETE also added cash to its offer in response to Williams’ June counterbid.

Williams’ latest proposal represents a 56 per cent premium to Southern Union’s share price in mid-June, the day before the initial agreement with ETE was announced.

Williams also on Thursday added a so-called “hell or high water” provision to its offer, saying that it would take all necessary steps to secure antitrust clearance for the deal. The company, which is in the process of splitting its exploration and production operations from its midstream assets, also said it now had financing in place for the deal.

Williams’ commitment on gaining antitrust approval, which could involve selling selected assets, is designed to allay potential concerns about overlap in markets such as Florida, and comes after ETE added a similar provision to its offer last week.

Alan Armstrong, chief executive of Williams, told the Financial Times the company had identified additional cost savings and revenue opportunities since launching its bid, adding that his investors saw merit in a combination with Southern Union.

“Savvy investors look at the cash flows of this business, know that we are good operators …and see potential for the business to generate dividends for shareholders,” he said.

The battle over Southern Union comes as US operators scramble to secure the energy infrastructure that will link new supplies of cheap, natural gas to end-users. Technological developments have opened up new areas of production around the US in recent years, boosting supplies of gas.

Buying Houston-based Southern Union would take Williams into new markets, giving the company access to areas such as the Permian basin in Texas and New Mexico. Put together the companies own 30,000 miles of regulated pipelines.

Williams said earlier this year that it would split its business into two, separating its exploration and production activities from its midstream assets. The company expects an initial public offering and subsequent spin-off of WPX Energy, its upstream business, to be completed by the first quarter of next year as planned.

Barclays Capital and Citigroup are advising Williams. Evercore Partners and Goldman Sachs are advising Southern Union, while Credit Suisse is advising ETE.