Business Context and Reporting Period
This Form 8-K, filed on July 5, 2011, reports material events for Energy Transfer Equity, L.P. (ETE) occurring on July 4, 2011. The filing details the amendment of a merger agreement to acquire Southern Union Company (SUG) and a related asset dropdown transaction with Energy Transfer Partners, L.P. (ETP).
Key Financial Metrics and Transaction Terms
- Merger Consideration: SUG shareholders may elect to receive either $40.00 in cash per share or 0.903 ETE Common Units per share.
- Consideration Caps: Cash consideration is capped at 60% of the aggregate merger consideration; equity consideration is capped at 50%.
- Financing: Credit Suisse has committed to a $3.273 billion 364-day senior bridge term loan to fund the cash portion of the merger.
- Citrus Dropdown Proceeds: ETE expects to receive approximately $1.9 billion ($1.881 billion cash and $19.0 million in ETP units) for contributing a 50% interest in Citrus Corp. to ETP.
- Termination Fees: The amended agreement sets a termination fee of $162.5 million payable by either party under specific circumstances, with potential reimbursement of costs up to $50.0 million.
Material Changes Versus Prior Period
The filing amends the Original Merger Agreement dated June 15, 2011. Key changes include:
- Termination Fee Structure: The fee was increased from a tiered structure ($92.5 million/$135 million) to a flat $162.5 million for both parties.
- Cost Reimbursement: The cap on reimbursable costs upon termination increased from $12.5 million to $50.0 million.
- Equity Award Treatment: Clarified that unvested restricted stock units (RSUs) will fully vest and convert to a lump sum cash payment of $40.00 per share.
Guidance, Outlook, Risks, and Unusual Items
- Conditions to Closing: The merger is subject to SUG shareholder approval, antitrust clearance (HSR Act), regulatory approvals (FERC, Massachusetts DPU, Missouri PSC), and the effectiveness of a Form S-4 registration statement.
- Divestitures: ETE has agreed to divestitures and business restructuring as necessary to obtain regulatory approvals.
- Support Agreement: Key SUG stockholders (including the CEO and COO) representing approximately 13.43% of outstanding shares have agreed to vote in favor of the merger and elect equity consideration.
- Director Resignations: Bill W. Byrne and Paul E. Glaske resigned as directors of ETE's General Partner effective June 30, 2011, unrelated to any disagreement with the Partnership.
- Risks: Forward-looking statements are subject to risks regarding the failure to meet closing conditions or realize anticipated benefits.
Important Facts for Investor Verification
- Verify the final election ratio between cash and equity consideration by SUG shareholders, as this determines the actual cash outflow and dilution for ETE.
- Confirm the status of regulatory approvals from the FERC, Massachusetts DPU, and Missouri PSC.
- Monitor the definitive joint proxy statement/prospectus for detailed financial projections and risk factors.
- Assess the impact of the $162.5 million termination fee obligation on ETE's liquidity in the event of deal failure.
- Review the terms of the relinquishment of approximately $220 million in incentive distributions from ETP to ensure alignment with long-term value creation.