Business Context and Reporting Period
Company: Energy Transfer Equity, L.P. (ETE)
Filing Date: July 19, 2011
Event: Entry into a Second Amended and Restated Agreement and Plan of Merger with Southern Union Company (SUG) and a related "Citrus Dropdown" transaction with Energy Transfer Partners, L.P. (ETP).
Key Financial Metrics and Transaction Terms
This filing details a material definitive agreement rather than periodic financial results. Key financial terms include:
- Merger Consideration for SUG: A mix of cash and ETE Common Units.
- Cash Component: $44.25 per SUG share (capped at 60% of total consideration).
- Equity Component: 1.00 ETE Common Unit per SUG share (capped at 50% of total consideration).
- Financing: A $3.7 billion 364-day senior bridge term loan facility committed by Credit Suisse to fund the cash portion of the merger.
- Citrus Dropdown Proceeds: SUG will contribute a 50% interest in Citrus Corp. to ETP in exchange for approximately $2.0 billion ($1.895 billion cash and $105 million in ETP units).
- Termination Fees: Increased to $181.3 million (from $162.5 million) payable by either party under specific termination scenarios.
- Transaction Expenses: Potential reimbursement of costs up to $54.0 million (increased from $50.0 million).
Material Changes Versus Prior Period
The filing represents an amendment to the "First Amended Merger Agreement" dated July 4, 2011. Material changes include:
- Termination Fee Increase: Raised from $162.5 million to $181.3 million.
- Expense Cap Increase: Raised from $50.0 million to $54.0 million.
- Financing Amendment: The bridge commitment letter was amended and restated to supersede the July 4 agreement.
- Citrus Transaction: Formalized the "Citrus Dropdown" where ETE assigns obligations to SUG, and SUG contributes assets to ETP for $2.0 billion.
Guidance, Outlook, Risks, and Contingencies
Conditions to Closing: The merger is subject to SUG stockholder approval, expiration of the HSR Act waiting period, regulatory approvals (FERC, Massachusetts DPU, Missouri PSC), and the effectiveness of a Form S-4 registration statement.
Divestitures: ETE must agree to divestitures and business restructuring to obtain antitrust and regulatory approvals.
Timeline: The agreement may be terminated if not completed by June 30, 2012, extendable to December 31, 2012.
Risks: Forward-looking statements are subject to risks including failure to meet closing conditions, inability to realize anticipated benefits, and regulatory hurdles. The filing explicitly states it does not provide factual financial information about the companies' ongoing operations.
Investor Verification Checklist
- Verify the final election ratio of cash vs. equity by SUG shareholders to determine the actual cash outlay required.
- Confirm receipt of all regulatory approvals, specifically from FERC and state utility commissions.
- Monitor the status of the $3.7 billion bridge financing and any subsequent permanent debt refinancing.
- Review the definitive proxy statement/prospectus for detailed risk factors and participant interests.
- Track the closing of the Citrus Dropdown transaction to ensure the $2.0 billion proceeds are realized to fund the merger.