S-4/A 1 d207884ds4a.htm AMENDMENT NO. 5 TO FORM S-4 Amendment No. 5 to Form S-4
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As filed with the Securities and Exchange Commission on October 27, 2011

Registration No. 333-175461

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 5

TO

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ENERGY TRANSFER EQUITY, L.P.

(Exact name of Registrant as Specified in its Charter)

 

 

 

Delaware   001-32740   30-0108820

(State or other jurisdiction

of incorporation)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

3738 Oak Lawn Avenue

Dallas, Texas 75219

(214) 981-0700

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

 

 

John W. McReynolds

President and Chief Financial Officer

Energy Transfer Equity, L.P.

3738 Oak Lawn Avenue

Dallas, Texas 75219

(214) 981-0700

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

 

 

With a copy to:

 

William N. Finnegan IV

Sean T. Wheeler

Latham & Watkins LLP

811 Main Street, Suite 3700

Houston, Texas 77002

(713) 546-5400

 

Robert M. Kerrigan, III

Vice President, Assistant

General Counsel and Secretary

Southern Union Company

5051 Westheimer Road

Houston, Texas 77056

(713) 989-2000

 

Don M. Glendenning

Seth M. Warner

Locke Lord LLP

2200 Ross Ave., Suite 2200

Dallas, Texas 75201

(214) 740-8623

 

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed proxy statement/prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x   Accelerated filer  ¨   Non–accelerated filer  ¨   Smaller reporting company  ¨
    (Do not check if a smaller reporting company)  

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)

    ¨   

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)

    ¨   

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this document is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This document is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION DATED OCTOBER 27, 2011

LOGO

Dear Southern Union Company Stockholders:

Southern Union Company, or Southern Union, and Energy Transfer Equity, L.P., or ETE, have entered into a merger agreement that provides for Southern Union to become a direct wholly owned subsidiary of ETE. Under the merger agreement, Southern Union stockholders may elect to receive, for each outstanding Southern Union share they hold and subject to the limits described below, either $44.25 in cash, a cash election, or 1.00 ETE common unit (and cash in lieu of fractional ETE common units), an equity election. This election is subject to the following limits:

 

   

The aggregate cash consideration will be capped at 60% of the aggregate merger consideration. Thus, if holders of more than 60% of the outstanding Southern Union shares make a cash election, the amount of cash per outstanding Southern Union share to be received by holders making a cash election will be reduced (pro rata across all outstanding Southern Union shares subject to a cash election), so that no more than 60% of the aggregate merger consideration is payable in cash and the remainder of the consideration in respect of outstanding Southern Union shares subject to a cash election will be payable in ETE common units at an exchange ratio of 1.00 ETE common unit per outstanding Southern Union share (and cash in lieu of fractional ETE common units).

 

   

The aggregate ETE common unit consideration will be capped at 50% of the aggregate merger consideration. Thus, if holders of more than 50% of the outstanding Southern Union shares make or are deemed to have made an equity election, the number of ETE common units per outstanding Southern Union share to be received by holders making an equity election will be reduced (pro rata across all outstanding Southern Union shares subject to an equity election), so that no more than 50% of the aggregate merger consideration is payable in ETE common units and the remainder of the consideration in respect of outstanding Southern Union shares subject to an equity election will be payable in cash at $44.25 per outstanding Southern Union share.

Shares of common stock of Southern Union are traded on the New York Stock Exchange under the symbol “SUG,” and ETE common units are traded on the New York Stock Exchange under the symbol “ETE.”

In connection with the merger, Southern Union will hold a special meeting of its stockholders to consider and vote on the merger agreement and certain other matters. The affirmative vote of the holders of a majority of the outstanding Southern Union shares entitled to vote as of the record date established by the Southern Union Board of Directors is required to approve the merger agreement and the merger. Certain stockholders of Southern Union have entered into a support agreement with ETE, pursuant to which they have agreed to vote all of their Southern Union shares in favor of the merger agreement and the transactions contemplated thereby, including the merger, and to make an equity election. Collectively, these stockholders currently hold approximately 13.43% of Southern Union’s outstanding shares of common stock.

Your vote is very important. Information about the special meeting of Southern Union stockholders, the merger and the other business to be considered by the Southern Union stockholders at the special meeting is contained in the accompanying proxy statement/prospectus, which we urge you to read.  In particular, see the section titled “Risk Factors” beginning on page 27 of the accompanying document.

The Southern Union Board, acting upon the unanimous recommendation of the members of a Special Committee of the Southern Union Board which committee was comprised solely of independent directors, approved and declared the advisability of the merger agreement and the transactions contemplated thereby, including the merger, and recommends that the stockholders of Southern Union vote to approve the merger agreement and the transactions contemplated thereby, including the merger.

Sincerely,

LOGO

GEORGE L. LINDEMANN

Chairman of the Board and

Chief Executive Officer

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the accompanying document or determined that the accompanying document is accurate or complete. Any representation to the contrary is a criminal offense.

The accompanying document is dated October 27, 2011 and is first being mailed to the stockholders of Southern Union on or about October 27, 2011.


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LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the Southern Union Company Stockholders:

This is a notice that a special meeting of the stockholders of Southern Union Company, a Delaware corporation (“Southern Union”), will be held on December 9, 2011 at 11:00 a.m., local time, at the Metropolitan Club, One East 60th Street, New York, New York 10022 for the following purposes:

 

  1. to consider and vote upon a proposal to adopt the Second Amended and Restated Agreement and Plan of Merger, dated as of July 19, 2011, by and among Energy Transfer Equity, L.P., a Delaware limited partnership (“ETE”), Sigma Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of ETE (“Merger Sub”), and Southern Union, as it may be amended from time to time, pursuant to which Merger Sub will be merged with and into Southern Union (the “merger”), with Southern Union surviving the merger as a wholly owned subsidiary of ETE, and the transactions contemplated thereby, including the merger;

 

  2. to consider and cast an advisory (non-binding) vote on the compensation to be received by Southern Union’s named executive officers in connection with the merger;

 

  3. to consider and vote upon any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement; and

 

  4. to transact such other business as may properly come before the special meeting and any adjournment or postponement thereof.

Only Southern Union stockholders of record at the close of business on October 11, 2011, the record date for the special meeting, are entitled to receive this notice and to vote at the special meeting or any adjournment or postponement of that meeting.

The Board of Directors of Southern Union (the “Southern Union Board”), acting upon the unanimous recommendation of the members of a Special Committee of the Southern Union Board, which committee was comprised solely of independent directors, has approved and declared the advisability of the merger agreement and the transactions contemplated thereby, including the merger, and is submitting the merger agreement and the merger to the Southern Union stockholders for approval at the special meeting.

The merger cannot be completed unless the affirmative vote of the holders of a majority of the outstanding Southern Union shares entitled to vote as of the record date for the special meeting is received.

Whether or not you plan to attend the special meeting, please submit your proxy with voting instructions as soon as possible. If you hold Southern Union common stock in your name as a stockholder of record, please complete, sign, date and return the accompanying proxy card in the enclosed self-addressed stamped envelope, use the toll-free telephone number shown on the proxy card or use the internet website shown on the proxy card. If you hold Southern Union common stock through a bank or broker, please use the voting instructions you have received from your bank or broker. Submitting your proxy will not prevent you from attending the special meeting and voting in person. Please note, however, that if you hold Southern Union common stock through a bank or broker, and you wish to vote in person at the special meeting, you must obtain from your bank or broker a proxy issued in your name. You may revoke your proxy by attending the special meeting and voting your Southern Union common stock in person at the special meeting. You may also revoke your proxy at any time before it is voted by giving written notice of revocation to the Secretary of Southern Union at the address provided with the proxy card at or before the special meeting or by submitting a proxy with a later date.


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The accompanying document describes the proposed merger in more detail. We urge you to read carefully the entire document before voting your shares of Southern Union common stock at the special meeting or submitting your voting instructions by proxy. In particular, see the section titled “Risk Factors” beginning on page 27 of the accompanying document.

The Southern Union Board recommends that the Southern Union stockholders vote:

 

  1. FOR” the proposal to adopt the merger agreement and the transactions contemplated thereby, including the merger;

 

  2. FOR” the proposal to approve, on an advisory (non-binding) basis, the compensation to be received by Southern Union’s named executive officers in connection with the merger; and

 

  3. FOR” any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement.

By Order of the Board of Directors,

LOGO

ROBERT M. KERRIGAN, III

Vice President, Assistant General Counsel and

Secretary

Houston, Texas

October 27, 2011


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IMPORTANT NOTE ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form S-4 filed with the Securities and Exchange Commission (“SEC”), constitutes a proxy statement of Southern Union Company (“Southern Union”) under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the solicitation of proxies for the special meeting of stockholders of Southern Union, or any adjournment or postponement thereof, to, among other things, adopt the merger agreement and the merger. This document is also a prospectus of Energy Transfer Equity, L.P. (“ETE”) under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”) for ETE common units that will be issued to stockholders of Southern Union in the merger pursuant to the merger agreement.

As permitted under the rules of the SEC, this document incorporates by reference important business and financial information about ETE and Southern Union from other documents filed with the SEC that are not included in or delivered with this document. Please read the section titled “Where You Can Find More Information” beginning on page 169. You can obtain any of the documents incorporated by reference into this document from the SEC’s website at http://www.sec.gov. This information is also available to you without charge upon your request in writing or by telephone from ETE or Southern Union at the following addresses and telephone numbers:

 

Energy Transfer Equity, L.P.

3738 Oak Lawn Avenue

Dallas, Texas 75219

Attn: Investor Relations

(214) 981-0700

  

Southern Union Company

5051 Westheimer Road

Houston, Texas 77056

Attn: Investor Relations

(713) 989-2000

Please note that copies of the documents provided to you will not include exhibits, unless the exhibits are specifically incorporated by reference into the documents or this document.

You may obtain certain of these documents at ETE’s website, www.energytransfer.com, by selecting “Investor Relations,” then selecting “SEC Filings” and then selecting “ETE,” and at Southern Union’s website, www.sug.com, by selecting “Investors” and then selecting “SEC Filings.” None of the information contained on the website of ETE and Southern Union is incorporated by reference into this document.

In order to receive timely delivery of the documents in advance of Southern Union’s special meeting of stockholders, your request should be received no later than December 2, 2011. In order to receive timely delivery of the documents in advance of the election deadline for the merger, your request should be received no later than four business days prior to the election deadline. ETE and Southern Union will publicly announce the election deadline at least five business days prior to such deadline. If you request any documents, ETE or Southern Union will mail them to you by first class mail, or another equally prompt means, within one business day after receipt of your request.

If you have any questions about the merger or the consideration that you will receive in connection with the merger, including any questions relating to the election or transmittal of materials, or would like additional copies of the election form and letter of transmittal (which are being mailed to Southern Union stockholders separately), you may contact Southern Union’s proxy solicitor at the address and telephone number listed below. You will not be charged for any additional election forms and letters of transmittal that you request.

Innisfree M&A Incorporated

Shareholders may call toll-free at (877) 825-8906

Banks and brokers may call collect at (212) 750-5833


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TABLE OF CONTENTS

 

      Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETING

     i   

SUMMARY

     1   

Information about the Companies

     1   

Proposal 1 – The Merger

     3   

Merger Consideration

     3   

Treatment of Southern Union Options and Other Equity Awards

     3   

Risk Factors

     4   

Special Meeting of Southern Union Stockholders

     4   

Financing Commitment

     5   

Support Agreement

     5   

Southern Union’s Reasons for the Merger; Recommendation of the Southern Union Special Committee and the Southern Union Board

     5   

Opinion of Southern Union’s Financial Advisors

     6   

Interests of Southern Union’s Executive Officers and Directors in the Merger

     6   

Regulatory Approvals Required for the Merger

     7   

Appraisal Rights

     7   

NYSE Listing of ETE Common Units

     8   

Delisting and Deregistration of Southern Union Common Stock

     8   

Conditions to Completion of the Merger

     8   

Expected Timing of the Merger

     9   

Non-Solicitation by Southern Union

     9   

Termination of Merger Agreement

     9   

Expense Reimbursement; Breakup Fee

     10   

Accounting Treatment

     11   

Material U.S. Federal Income Tax Consequences

     11   

Comparison of Rights of ETE Unitholders and Southern Union Stockholders

     11   

Litigation Relating to the Merger

     12   

Proposal 2 – Advisory Vote on Executive Compensation

     12   

Citrus Merger

     12   

Selected Consolidated Historical Financial Data of Energy Transfer Equity, L.P.

     13   

Selected Consolidated Historical Financial Data of Southern Union Company

     14   

Selected Unaudited Pro Forma Condensed Combined Financial Information

     15   

Unaudited Comparative Per Unit/Share Data

     23   

Comparative ETE and Southern Union Per Unit/Share Market Price Data

     24   

RISK FACTORS

     27   

Risks Related to the Merger

     27   

Tax Risks Related to the Merger

     32   

Tax Risks Related to Ownership and Disposition of ETE Common Units

     33   


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      Page  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     34   

INFORMATION ABOUT THE COMPANIES

     35   

SPECIAL MEETING OF SOUTHERN UNION STOCKHOLDERS

     38   

PROPOSAL 1 – THE MERGER

     43   

General

     43   

Background of the Merger

     43   

Southern Union’s Reasons for the Merger; Recommendation of the Southern Union Special Committee and the Southern Union Board

     58   

Support Agreement

     63   

Opinion of Southern Union’s Financial Advisors

     64   

Forward-Looking Financial Information Related to Southern Union

     79   

ETE’s Reasons for the Merger

     80   

Security Ownership of Certain Beneficial Owners and Management

     81   

Interests of Southern Union’s Executive Officers and Directors in the Merger

     83   

ETE Board Following the Merger

     92   

Manner and Procedure for Exchanging Southern Union Shares

     92   

Regulatory Approvals Required for the Merger

     93   

Expected Timing of the Merger

     93   

No ETE Unitholder Approval

     93   

Appraisal Rights

     94   

Merger Expenses, Fees and Costs

     97   

Accounting Treatment

     97   

Material U.S. Federal Income Tax Consequences

     97   

NYSE Listing of ETE Common Units

     98   

Delisting and Deregistration of Southern Union Common Stock

     98   

Litigation Relating to the Merger

     98   

THE MERGER AGREEMENT

     100   

The Merger

     100   

Closing; Effective Time

     100   

Directors and Officers

     101   

Merger Sub Contribution

     101   

Merger Consideration

     101   

Dissenting Shares

     102   

Election Procedures

     102   

Exchange of Shares

     103   

Representations and Warranties

     104   

Definition of Material Adverse Effect

     106   

Conduct of Business Pending the Merger

     107   

Mutual Access

     111   

Non-Solicitation by Southern Union

     111   

Other Covenants and Agreements

     114   

Obligations with Respect to this Document and Southern Union Stockholder Meeting

     115   

Employee Equity-Based Awards

     115   


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Page

 

Employee Matters

     115   

Regulatory Approvals; Efforts to Closing Merger

     116   

Indemnification and Insurance

     117   

Tax Treatment

     118   

Financing and Financing Assistance

     118   

Citrus Merger

     118   

Conditions to the Merger

     119   

Termination of the Merger Agreement

     121   

Effect of Termination

     122   

Expense Reimbursement; Breakup Fee

     122   

Fees and Expenses

     123   

Amendment and Waiver

     123   

Governing Law

     124   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     125   

U.S. Federal Income Tax Consequences of the Merger

     125   

Certain U.S. Federal Income Tax Consequences of Receiving ETE Common Units in the Merger

     129   

U.S. Federal Income Taxation of ETE and its Unitholders

     133   

Tax-Exempt Organizations and Other Investors

     146   

Accuracy-Related Penalties

     148   

Reportable Transactions

     149   

Recent Legislative Developments

     149   

State, Local, Foreign and Other Tax Considerations

     149   

DESCRIPTION OF ETE COMMON UNITS

     151   

COMPARISON OF RIGHTS OF ETE UNITHOLDERS AND SOUTHERN UNION STOCKHOLDERS

     154   

PROPOSAL 2 – ADVISORY VOTE ON EXECUTIVE COMPENSATION

     166   

LEGAL MATTERS

     167   

EXPERTS

     167   

FUTURE STOCKHOLDER PROPOSALS

     168   

WHERE YOU CAN FIND MORE INFORMATION

     169   

ANNEX A SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, AS AMENDED

     A-1   

ANNEX B SECOND AMENDED AND RESTATED SUPPORT AGREEMENT

     B-1   

ANNEX C OPINION OF EVERCORE GROUP L.L.C.

     C-1   

ANNEX D OPINION OF GOLDMAN, SACHS & CO.

     D-1   

ANNEX E SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE

     E-1   


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QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETING

Set forth below are questions that you, as a stockholder of Southern Union, may have regarding the merger and the special meeting of Southern Union stockholders and brief answers to those questions. For a more complete description of the legal and other terms of the merger, please read carefully this entire document, including the second amended and restated agreement and plan of merger dated as of July 19, 2011 (as amended) attached as Annex A (the “merger agreement”) to this proxy statement/prospectus, and the documents incorporated by reference into this document. You may obtain a list of the documents incorporated by reference into this document in the section “Where You Can Find More Information” beginning on page 169.

Any references in this document to a page number is a reference to a page in this document.

 

Q: Why am I receiving these materials?

 

A: ETE and Southern Union have agreed to a merger pursuant to which Southern Union will become a direct wholly owned subsidiary of ETE, and Southern Union will cease to be a publicly held company. In order to complete the merger, stockholders of Southern Union must adopt the merger agreement and the transactions contemplated thereby, including the merger. In the merger, Southern Union stockholders may elect to receive their consideration in the form of cash (a “cash election”), ETE common units (an “equity election”), or a combination of both. The exact consideration any Southern Union stockholder will receive will be subject to a proration feature. See “The Merger Agreement—Merger Consideration” on page 101.

This document is being delivered to you as both a proxy statement of Southern Union and a prospectus of ETE in connection with the merger. It is the proxy statement by which the Southern Union Board is soliciting proxies from you to vote on the approval of the merger agreement at the special meeting or at any adjournment or postponement of the special meeting. It is also the prospectus by which ETE will issue ETE common units in the merger.

 

Q: What am I being asked to vote on?

 

A: Southern Union stockholders are being asked to vote on the following proposals:

 

  1. to consider and adopt the merger agreement (attached as Annex A to this document) and the transactions contemplated thereby, including the merger;

 

  2. to consider and cast an advisory (non-binding) vote on the compensation to be received by Southern Union’s named executive officers in connection with the merger;

 

  3. to consider and vote upon any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement; and

 

  4. to transact such other business as may properly come before the special meeting and any adjournment or postponement thereof (at the present time, Southern Union knows of no other matters that will be presented for consideration at the special meeting).

 

Q: How does the Southern Union Board recommend that I vote on the matters to be considered at the special meeting?

 

A: The Southern Union Board recommends that the stockholders of Southern Union vote:

 

   

FOR” the proposal to adopt the merger agreement and the transactions contemplated thereby, including the merger;

 

   

FOR” the proposal to approve, on an advisory (non-binding) basis, the compensation to be received by Southern Union’s named executive officers in connection with the merger; and

 

   

FOR” any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement.

See “Proposal 1 – The Merger—Southern Union’s Reasons for the Merger; Recommendation of the Southern Union Special Committee and the Southern Union Board” beginning on page 58.

 

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In considering the recommendation of the Southern Union Board with respect to the merger agreement and the transactions contemplated thereby, including the merger, you should be aware that some of Southern Union’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Southern Union stockholders generally. See “Proposal 1 – The Merger—Interests of Southern Union’s Executive Officers and Directors in the Merger” beginning on page 83.

 

Q: What will happen in the merger?

 

A: Pursuant to the merger agreement, Sigma Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of ETE (“Merger Sub”), will be merged with and into Southern Union, with Southern Union surviving the merger as a direct wholly owned subsidiary of ETE. The merger will become effective on such date and at such time that the certificate of merger is filed with the Secretary of State of the State of Delaware, or such later date and time as may be agreed upon by ETE and Southern Union and set forth in the certificate of merger. Throughout this document, this date and time is referred to as the “effective time” of the merger.

 

Q: What is the amount of cash and/or the number of ETE common units that I will be entitled to receive for my shares of Southern Union common stock?

 

A: Under the merger agreement, Southern Union stockholders may elect to receive, for each outstanding Southern Union share they hold and subject to the limits described below, either $44.25 in cash (a “cash election”) or 1.00 ETE common unit (and cash in lieu of fractional ETE common units) (an “equity election”). This election is subject to the following limits:

 

   

The aggregate cash consideration will be capped at 60% of the aggregate merger consideration. Thus, if holders of more than 60% of the outstanding Southern Union shares make a cash election, the amount of cash per outstanding Southern Union share to be received by holders making a cash election will be reduced (pro rata across all outstanding Southern Union shares subject to a cash election), so that no more than 60% of the aggregate merger consideration is payable in cash and the remainder of the consideration in respect of outstanding Southern Union shares subject to a cash election will be payable in ETE common units at an exchange ratio of 1.00 ETE common unit per outstanding Southern Union share (and cash in lieu of fractional ETE common units).

 

   

The aggregate ETE common unit consideration will be capped at 50% of the aggregate merger consideration. Thus, if holders of more than 50% of the outstanding Southern Union shares make or are deemed to have made an equity election, the number of ETE common units per outstanding Southern Union share to be received by holders making an equity election will be reduced (pro rata across all outstanding Southern Union shares subject to an equity election), so that no more than 50% of the aggregate merger consideration is payable in ETE common units and the remainder of the consideration in respect of outstanding Southern Union shares subject to an equity election will be payable in cash at $44.25 per outstanding Southern Union share.

 

Q: What will happen to my Southern Union stock options, stock appreciation rights and restricted stock in the merger?

 

A: At the effective time, all stock options and stock appreciation rights outstanding immediately prior to the effective time will vest. To the extent not exercised prior thereto, all unexercised options and stock appreciation rights will be cancelled immediately prior to the effective time. Each stock option and stock appreciation right so cancelled that has an exercise price of less than $44.25 will be converted into the right to receive an amount in cash equal to $44.25 less (i) the applicable exercise price and (ii) any applicable deductions and withholdings required by law.

Shares of restricted stock for which restrictions have not otherwise lapsed or expired and are outstanding prior to the effective time will have their associated restrictions accelerate and expire immediately prior to the effective time and the total number of Southern Union shares subject to such restricted stock grant will

 

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be converted into the right to receive $44.25 in cash or 1.00 ETE common unit (at the election of the individual holders thereof), less all deductions and withholdings required by law (such deduction to come first from any cash payable as part of the consideration for such restricted stock and then by reducing the number of ETE common units otherwise payable as part of the consideration for such restricted stock (with the ETE common unit valued at the closing price thereof on the day prior to the closing of the merger for this purpose)).

Each unvested award of restricted share units with respect to Southern Union shares under a Southern Union stock plan that is outstanding immediately prior to the effective time will fully vest, and each Southern Union restricted share unit will be converted into the right to receive a lump sum cash payment equal to the greater of (i) $44.25 or (ii) the closing price of ETE common units on the New York Stock Exchange (the “NYSE”) on the closing date of the merger, multiplied by the total number of shares underlying such restricted share unit, less any applicable deductions and withholdings required by law.

 

Q. If my shares of Southern Union common stock are held through the Southern Union Savings Plan, what will happen to my shares?

 

A. All Southern Union stockholders who hold shares through the Southern Union Savings Plan at the close of business on October 11, 2011, which is the record date, are entitled to receive notice of and to vote at the special meeting and any adjournment or postponement thereof provided that such shares remain outstanding on the date of the special meeting.

Under the terms of the merger agreement, ETE has the right to instruct Southern Union to liquidate and eliminate Southern Union common stock as an investment option under the Southern Union Savings Plan prior to the effective time of the merger. On October 24, 2011, ETE exercised this right because the receipt and retention by Southern Union Savings Plan participants of merger consideration in the form of ETE common units would result in a prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended. Accordingly, holders of shares of Southern Union common stock through the Southern Union Savings Plan will not be permitted to make a cash election or an equity election with respect to such shares.

Assuming that the holders of a majority of the outstanding Southern Union shares entitled to vote as of the record date vote FOR the merger agreement and the transactions contemplated thereby, including the merger, the liquidation of Southern Union common stock held in the Southern Union Savings Plan will take place prior to the effective time of the merger. Until such liquidation begins, Southern Union common stock will continue to be an available investment option under the Southern Union Savings Plan. However, once such liquidation begins, any shares of Southern Union common stock held in the Southern Union Savings Plan will be sold by the plan trustee. Details of these procedures will be provided directly to Southern Union Savings Plan participants.

 

Q: If I am a Southern Union stockholder, will I receive dividends in the future?

 

A: Before completion of the merger, Southern Union expects to pay regular quarterly dividends on shares of Southern Union common stock, which currently are $0.15 per share, at times and intervals consistent with its prior practice and as permitted by the merger agreement. Your receipt of this regular quarterly dividend will not reduce the per share merger consideration. Once the merger is completed and ETE common units are exchanged for shares of Southern Union common stock, when distributions are declared by the Board of Directors (the “ETE Board”) of LE GP, LLC, ETE’s general partner, and paid by ETE, former Southern Union stockholders will receive distributions on ETE common units that they receive in the merger in accordance with ETE’s partnership agreement. Southern Union stockholders will not receive dividends from Southern Union and distributions from ETE for the same quarter. For additional information, please read “Summary—Comparative ETE and Southern Union Per Unit/Share Market Price Data” beginning on page 24.

 

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Current ETE unitholders and holders of ETE’s Series A Convertible Preferred Units (the “Series A Units”) will continue to receive distributions on their common units and Series A Units in accordance with ETE’s partnership agreement. For a description of the distribution provisions of ETE’s partnership agreement, please read “Comparison of Rights of ETE Unitholders and Southern Union Stockholders” beginning on page 154.

The current annualized dividend rate per share of Southern Union common stock is $0.60 (based on the quarterly dividend rate of $0.15 per share of outstanding Southern Union common stock declared on September 16, 2011 with respect to the third quarter of 2011). Based on the exchange ratio, the annualized distribution rate for each share of Southern Union common stock exchanged for 1.00 ETE common unit would be approximately $2.50 (based on the quarterly distribution rate of $0.625 per ETE common unit declared on June 30, 2011 with respect to the second quarter of 2011). Accordingly, based on current distribution rates and the exchange ratio of 1.00 ETE common unit, a Southern Union stockholder would initially receive approximately 317% more in quarterly cash distributions on an annualized basis after giving effect to the merger. For additional information, please read “Summary—Unaudited Comparative Per Unit/Share Data” on page 23 and “Summary—Comparative ETE and Southern Union Per Unit/Share Market Price Data” beginning on page 24.

 

Q: What vote of stockholders is required to adopt the merger agreement and the transactions contemplated thereby, including the merger?

 

A: The merger agreement and the transactions contemplated thereby, including the merger, must be approved by the holders of a majority of the outstanding Southern Union shares entitled to vote as of the record date. Abstentions and broker non-votes will be the equivalent of a “NO” vote with respect to the approval of the merger agreement and the transactions contemplated thereby, including the merger. An abstention occurs when a Southern Union stockholder abstains from voting (either in person or by proxy) on one or more of the proposals. Broker non-votes may occur when a person holding shares through a bank, broker or other nominee does not provide instructions as to how the shares should be voted, and the broker lacks discretionary authority to vote on a particular proposal.

Concurrently with the execution of the merger agreement, Mr. Lindemann, Chairman of the Board and Chief Executive Officer of Southern Union, Mr. Herschmann, Vice Chairman of the Board, President and Chief Operating Officer, and members of Mr. Lindemann’s family, who directly or indirectly own approximately 16,744,285 shares of Southern Union common stock (or approximately 20,139,036 shares when including unexercised options and shares of restricted stock which are not entitled to vote until exercise or the expiration of restrictions, respectively), representing approximately 13.43% of Southern Union’s outstanding shares of common stock, entered into a second amended and restated support agreement with ETE and Merger Sub that provides, among other things, that such stockholders will vote their shares in favor of adoption of the merger agreement, unless there is a change in the recommendation of the Southern Union Board, and that they will elect to receive the ETE common unit consideration rather than the right to receive $44.25 in cash in the merger (other than with respect to unexercised options and shares held in the Southern Union Savings Plan, which will be treated as described herein).

 

Q: What vote of stockholders is required to approve the other matters to be considered at the special meeting?

 

A: The advisory vote on the compensation to be received by Southern Union’s named executive officers in connection with the merger requires the affirmative vote of the holders of a majority of the outstanding Southern Union shares having voting power represented at the special meeting in person or by proxy and entitled to vote as of the record date. The vote of Southern Union stockholders on the compensation to be received by Southern Union’s named executive officers in connection with the merger is advisory in nature and will not be binding on ETE or the Southern Union Board and will not impact whether or not the compensation is paid. Abstentions will be the equivalent of a vote against the advisory vote, while broker non-votes will have no effect on the outcome of the advisory vote.

 

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Any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding Southern Union shares having voting power represented at the special meeting in person or by proxy and entitled to vote as of the record date. Provided that the adjournment is for 30 days or less and no new record date is set, no notice of the adjourned meeting will be given other than by announcement made at the special meeting. Abstentions will be the equivalent of a vote against a proposal to adjourn the special meeting, while broker non-votes will have no effect on the outcome of the vote.

 

Q: What constitutes a quorum for the special meeting?

 

A: A quorum requires the presence, in person or by proxy, of holders of a majority of the outstanding Southern Union shares entitled to vote at the special meeting. In connection with the special meeting, abstentions will be considered in determining the presence of a quorum.

 

Q: When and where will the special meeting be held?

 

A:

The special meeting is scheduled to be held at the Metropolitan Club, One East 60th Street, New York, New York 10022 on December 9, 2011 at 11:00 a.m., local time.

 

Q. Who is entitled to vote at the special meeting?

 

A: All Southern Union stockholders who hold shares at the close of business on October 11, 2011, which is referred to herein as the record date, are entitled to receive notice of and to vote at the special meeting and any adjournment or postponement thereof provided that such shares remain outstanding on the date of the special meeting.

 

Q: What are the expected U.S. federal income tax consequences to a Southern Union stockholder as a result of the merger?

 

A: For U.S. federal income tax purposes, to the extent that a Southern Union stockholder receives cash in the merger, the stockholder will generally recognize gain or loss in an amount equal to the difference between the amount of cash received and the stockholder’s adjusted basis in the Southern Union common stock treated as sold in the merger. In general, no gain or loss will be recognized by a Southern Union stockholder to the extent that a Southern Union stockholder receives ETE common units in the merger. For a more detailed discussion of the material U.S. federal income tax consequences of the merger to Southern Union stockholders, please see the discussion in the section titled “Material U.S. Federal Income Tax Consequences” beginning on page 125.

 

Q: Are there any risks in the merger that I should consider?

 

A: Yes. There are risks associated with all business combinations, including the merger. These risks are discussed in more detail in the section titled “Risk Factors” beginning on page 27.

 

Q: How do I vote at the special meeting?

 

A: After you have carefully read this document, please respond by completing, signing and dating your proxy card and returning it in the enclosed postage-paid envelope or by submitting your proxy or voting instruction by telephone or through the internet as soon as possible so that your Southern Union shares will be represented and voted at the special meeting.

If your Southern Union shares are held in “street name,” please refer to your proxy card or the information forwarded by your broker or other nominee to see which options are available to you. The internet and telephone proxy submission procedures are designed to authenticate Southern Union stockholders and to allow you to confirm that your instructions have been properly recorded.

 

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If you are a record holder of Southern Union shares, the method you use to submit a proxy will not limit your right to vote in person at the special meeting if you later decide to attend the special meeting. If your Southern Union shares are held in the name of a broker or other nominee, you must obtain a proxy, executed in your favor from the holder of record, to be able to vote in person at the special meeting.

 

Q: If my Southern Union shares are held in “street name” by my broker or other nominee, will my broker or other nominee vote my units without instructions from me?

 

A: No. Your broker will not be able to vote your Southern Union shares without instructions from you. Please follow the procedure your broker provides to vote your shares.

 

Q: If I am planning on attending a special meeting in person, should I still submit a proxy?

 

A: Yes. Whether or not you plan to attend the special meeting, you should submit a proxy. Southern Union shares will not be voted if the holder of such shares does not submit a proxy and then does not vote in person at the special meeting. Failure to submit a proxy or to vote in person in favor of the adoption of the merger agreement and the transactions contemplated thereby will be the equivalent of a vote against such proposal. Failure to submit a proxy or to vote in person will have no effect with respect to the advisory vote and the proposal to adjourn the special meeting.

 

Q: What do I do if I want to change my vote after I have delivered my proxy card?

 

A: You may change your vote at any time before Southern Union shares are voted at the special meeting. You can do this in any of the three following ways:

 

   

by sending a written notice to the Secretary of Southern Union in time to be received before the special meeting stating that you revoke your proxy;

 

   

by completing, signing and dating another proxy card and returning it by mail in time to be received before the special meeting or by submitting a later dated proxy by telephone or the internet, in which case your later-submitted proxy will be recorded and your earlier proxy revoked; or

 

   

if you are a holder of record, or if you hold a proxy in your favor executed by a holder of record, by attending the special meeting and voting in person.

If your Southern Union shares are held in an account at a broker or other nominee, you should contact your broker or other nominee to change your vote.

 

Q: What should I do if I receive more than one set of voting materials for the special meeting?

 

A: You may receive more than one set of voting materials for the special meeting and the materials may include multiple proxy cards or voting instruction cards. For example, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive according to the instructions on it to ensure that all of your shares are voted.

 

Q: Can I submit my proxy by telephone or the internet?

 

A: Yes. In addition to mailing your proxy, you may submit it telephonically or on the internet. Instructions for using the telephone or internet to vote are described on your proxy card. For further information, please see the section titled “Special Meeting of Southern Union Stockholders—How to Submit Your Proxy” beginning on page 40.

 

Q: If I am a Southern Union stockholder, how do I make my election?

 

A:

As a holder of record of Southern Union shares entitled to vote, you will receive an election form, a copy of the proxy statement/prospectus and other appropriate and customary transmittal materials. If you are a holder of Southern Union shares, the election form will allow you to specify the number of shares with

 

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  respect to which you elect to receive cash and the number of shares with respect to which you elect to receive ETE common units. You must complete and return the election form on or before 5:00 p.m., New York time, on the twentieth business day following the date on which the election form is mailed (or such other later date as ETE and Southern Union shall agree). ETE and Southern Union will publicly announce the election deadline at least five business days prior to such deadline. An election form will be deemed properly completed only if accompanied by one or more certificates (or customary affidavits and, if required by ETE, the posting of a bond as indemnity against any claim made against ETE with respect to such certificate) representing all the Southern Union shares covered by such election form, together with duly executed transmittal materials included in the election form. ETE will make election forms available as may reasonably be requested from time to time by all persons who become holders (or beneficial owners) of Southern Union shares between the mailing date for the election form and the election deadline. For further information, please see the section titled “The Merger Agreement—Election Procedures” beginning on page 102. If you need to obtain an election form, please contact Innisfree M&A Incorporated toll free at (877) 825-8906. (Banks and brokers may call collect at (212) 750-5833.)

The election form and proxy card are separate documents and should each be completed in their entirety and sent to the appropriate addressee as directed in the instructions accompanying such materials. In lieu of completing a proxy card, you may also vote by telephone or on the internet. For further information, please see the section titled “Special Meeting of Southern Union Stockholders—How to Submit Your Proxy” beginning on page 40.

 

Q: Can I revoke or change my election after I mail my election form?

 

A: Yes. You may revoke or change your election by sending written notice thereof to Computershare Trust Company, N.A., the exchange agent, which notice must be received by the exchange agent prior to the election deadline noted above. In the event an election is revoked, under the merger agreement the Southern Union shares represented by such election will be treated as shares in respect of which no election has been made, except to the extent a subsequent election is properly made by the Southern Union stockholder during the election period. For further information, please see the section titled “The Merger Agreement—Election Procedures” beginning on page 102.

 

Q: What happens if I do not make an election or my election form is not received before the election deadline?

 

A: An equity election will be deemed to have been made for any Southern Union shares for which no effective election has been made by the election deadline. Upon completion of the merger, such Southern Union shares will be converted into the right to receive 1.00 ETE common unit per Southern Union share, subject to proration if the holders of more than 50% of the outstanding Southern Union shares make or are deemed to have made an equity election. For further information, please see the section titled “The Merger Agreement—Election Procedures” beginning on page 102.

 

Q: How do I exchange my Southern Union shares for merger consideration?

 

A: As soon as reasonably practicable after the effective time, and in any event not later than the fifth business day following such effective time, the exchange agent will mail to each holder of shares of Southern Union common stock (i) a letter of transmittal and (ii) instructions for use in effecting the surrender of the shares of Southern Union common stock (if such shares have not already been surrendered with an election form) in exchange for, as applicable, cash, ETE common units (which, for purposes of clarification, will be issued in book-entry form), cash in lieu of any fractional common units and any distributions payable pursuant to the merger agreement. You should read these instructions carefully. Assuming that you complete and submit the election form and letter of transmittal in accordance with their respective instructions and surrender your Southern Union shares for cancellation, you will not need to take any further action in order to receive the merger consideration.

 

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Q: How will I receive the merger consideration to which I am entitled?

 

A. You will be paid the merger consideration to which you are entitled upon the surrender to the exchange agent of your shares of Southern Union common stock and a duly completed and validly executed letter of transmittal. More information on the documentation you are required to deliver to the exchange agent may be found under the section titled “Proposal 1 – The Merger—Manner and Procedure for Exchanging Southern Union Shares” beginning on page 92. Any ETE common units you receive in the merger will be issued in book-entry form and you will receive cash in lieu of any fractional ETE common units. No interest will be paid or will accrue on any cash amounts received as merger consideration or in lieu of any fractional common units.

 

Q: What happens if I sell my Southern Union shares after the record date but before the special meeting?

 

A: The record date of the special meeting is earlier than the date of the special meeting and the date that the merger is expected to be completed. If you transfer your Southern Union shares after the record date but before the date of the special meeting, you will retain your right to vote at the special meeting (provided that such shares remain outstanding on the date of the special meeting), but you will not have the right to receive the merger consideration to be received by Southern Union stockholders in the merger. In order to receive the merger consideration, you must hold your shares through the completion of the merger. Once you properly submit an election form and related documentation as required thereby, selecting the type of consideration you wish to receive in the merger, you may not be able to transfer your Southern Union shares unless you subsequently revoke your election in accordance with the instructions set by the exchange agent to have your shares returned to you prior to the election deadline.

 

Q: Do I have appraisal rights?

 

A: Yes. Southern Union stockholders may exercise appraisal rights in connection with the merger under Delaware law.

 

Q: Is completion of the merger subject to any conditions?

 

A: Yes. In addition to the approval of the merger agreement by Southern Union stockholders, completion of the merger requires the receipt of the necessary governmental and regulatory approvals, the absence of a material adverse effect on ETE or Southern Union and the satisfaction or, to the extent permitted by applicable law, waiver of the other conditions specified in the merger agreement.

 

Q: When do you expect to complete the merger?

 

A: ETE and Southern Union are working towards completing the merger promptly. ETE and Southern Union currently expect to complete the merger in the first quarter of 2012, subject to the receipt of Southern Union stockholder approval, governmental and regulatory approvals and other usual and customary closing conditions. However, no assurance can be given as to when, or whether, the merger will occur.

 

Q: What happens if the merger is not completed?

 

A: If the merger agreement is not adopted by the Southern Union stockholders or if the merger is not completed for any other reason, Southern Union stockholders will not receive any payment for their Southern Union shares in connection with the merger. Instead, Southern Union would remain an independent public company and Southern Union shares would continue to be listed and traded on the NYSE. Under specified circumstances, ETE and Southern Union may be required to pay the other party a breakup fee of $181.3 million and/or reimburse the other party for up to $54.0 million in expenses as described in the section titled “The Merger Agreement—Expense Reimbursement; Breakup Fee” beginning on page 122.

 

Q: After completion of the merger, will I be able to vote to elect directors to the ETE Board?

 

A: No. Unitholders of ETE do not have the ability to elect directors to the ETE Board.

 

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Q: Who can I contact with questions about the special meeting or the merger and related matters?

 

A: If you have any questions about the merger and the other matters contemplated by this document or how to submit your proxy or voting instruction card or if you need additional copies of this document or the enclosed proxy card or voting instruction card, you should contact Southern Union’s proxy solicitor, Innisfree M&A Incorporated. Shareholders may call toll free at (877) 825-8906. Banks and brokers may call collect at (212) 750-5833. You may also contact Southern Union Company, Attention: Secretary, 5051 Westheimer Road, Houston, Texas 77056, (713) 989-2000.

 

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SUMMARY

This summary highlights selected information from this document. You are urged to carefully read the entire document and the other documents referred to in this document because the information in this section does not provide all the information that might be important to you with respect to the merger agreement, the merger and the other matters being considered at the meeting. See “Where You Can Find More Information” beginning on page 169. Each item in this summary refers to the page of this document on which that subject is discussed in more detail.

Information about the Companies

Energy Transfer Equity, L.P.

ETE is a publicly traded Delaware limited partnership, whose common units are traded on the NYSE under the ticker symbol “ETE.” ETE’s only cash generating assets are its direct and indirect investments in limited partner and general partner interests in Energy Transfer Partners, L.P. (“ETP”) and Regency Energy Partners LP (“Regency”), both of which are publicly traded master limited partnerships engaged in diversified energy-related services. The principal executive offices of ETE are located at 3738 Oak Lawn Avenue, Dallas, Texas 75219, and its telephone number is (214) 981-0700.

At October 24, 2011, ETE’s equity interests in ETP and Regency consisted of:

 

     General Partner
Interest

(as a % of total
partnership
interest)
    Incentive
Distribution
Rights
    Common
Units
 

ETP

     1.6     100     50,226,967 (1) 

Regency

     1.8     100     26,266,791 (2) 

 

  (1) Represents an approximate 23% limited partner interest in ETP.
  (2) Represents an approximate 17% limited partner interest in Regency.

The following is a brief description of ETP’s and Regency’s operations:

 

   

ETP is a publicly traded, investment grade partnership owning and operating a diversified portfolio of energy assets. ETP has pipeline operations in Arkansas, Arizona, Colorado, Louisiana, Mississippi, New Mexico, Utah and West Virginia and owns the largest intrastate pipeline system in Texas. ETP currently has natural gas operations that include more than 17,500 miles of gathering and transportation pipelines, treating and processing assets, and three storage facilities located in Texas. ETP is also one of the three largest retail marketers of propane in the United States, serving more than one million customers across the country. On October 15, 2011, ETP entered into an agreement to contribute its propane operations to AmeriGas Partners, L.P., or AmeriGas, in exchange for approximately $2.9 billion in cash and common units representing limited partner interests in AmeriGas. The transaction is expected to close late in 2011 or early in 2012. ETP owns a 70% interest in Lone Star NGL LLC (“Lone Star”), a joint venture between ETP and Regency, which owns and operates natural gas liquids (“NGLs”) storage, fractionation, and transportation assets in Texas, Louisiana and Mississippi. Lone Star’s assets include a 1,066-mile NGL pipeline and 43 million barrels of storage capacity at its Mont Belvieu, Texas facility.

 

   

Regency is a publicly traded Delaware limited partnership formed in 2005 engaged in the gathering, treating, processing, compressing and transportation of natural gas and NGLs. Regency focuses on providing midstream services in some of the most prolific natural gas production regions in the United States, including the Haynesville, Eagle Ford, Barnett, Fayetteville and Marcellus shales, as well as the Permian Delaware basin. Its assets are primarily located in Louisiana, Texas, Arkansas, Pennsylvania, Mississippi, Alabama and the mid-continent region of the United States, which includes Kansas, Colorado and Oklahoma. Regency owns a 30% interest in Lone Star.

 

 

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This document incorporates important business and financial information about ETE from other documents that are not included in or delivered with this document. For a list of the documents that are incorporated by reference, please see the section titled “Where You Can Find More Information” beginning on page 169.

Sigma Acquisition Corporation

Sigma Acquisition Corporation, or Merger Sub, is a Delaware corporation and a direct wholly owned subsidiary of ETE. Merger Sub has not carried on any activities to date, other than activities incidental to its formation or undertaken in connection with the transactions contemplated by the merger agreement. The principal executive offices of Merger Sub are located at 3738 Oak Lawn Avenue, Dallas, Texas 75219, and its telephone number is (214) 981-0700.

Southern Union Company

Southern Union, a Delaware corporation formed in 1932, owns and operates assets in the regulated and unregulated natural gas industry and is primarily engaged in the gathering, processing, transportation, storage and distribution of natural gas in the United States.

Through its wholly owned subsidiary, Panhandle Eastern Pipe Line Company, LP (“Panhandle”), and its subsidiaries, Southern Union owns and operates approximately 10,000 miles of interstate pipelines that transport up to 5.5 billion cubic feet per day (“Bcf/d”) of natural gas from the Gulf of Mexico, South Texas and the Panhandle regions of Texas and Oklahoma to major U.S. markets in the Midwest and Great Lakes regions of the United States. Panhandle also owns and operates a liquefied natural gas import terminal located on Louisiana’s Gulf Coast.

Through Citrus Corp., Southern Union owns a 50% interest in and operates Florida Gas Transmission Company, LLC (“Florida Gas”). Florida Gas owns an open-access interstate pipeline system with a mainline capacity of approximately 3.0 Bcf/d and approximately 5,500 miles of pipelines extending from South Texas through the Gulf Coast region of the United States to South Florida.

Through Southern Union Gas Services (“SUGS”), Southern Union owns approximately 5,500 miles of natural gas and NGL pipelines, five cryogenic plants with a combined capacity of 475 million cubic feet per day (“MMcf/d”) and five natural gas treating plants with combined capacities of 585 MMcf/d. SUGS is primarily engaged in connecting wells of natural gas producers to its gathering system, treating natural gas to remove impurities to meet pipeline quality specifications, processing natural gas for the removal of NGLs, and redelivering natural gas and NGLs to a variety of markets. Its operations are located in West Texas and Southeast New Mexico.

Through Southern Union’s regulated utility operations, Missouri Gas Energy and New England Gas Company, Southern Union serves natural gas end-user customers in Missouri and Massachusetts, respectively.

Shares of Southern Union’s common stock trade on the NYSE under the ticker symbol “SUG.” Southern Union’s principal executive offices are located at 5051 Westheimer Road, Houston, Texas 77056, and its telephone number is (713) 989-2000.

This document incorporates important business and financial information about Southern Union from other documents that are not included in or delivered with this document. For a list of the documents that are incorporated by reference, please see the section titled “Where You Can Find More Information” beginning on page 169.

 

 

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Proposal 1 – The Merger

ETE and Southern Union agreed to the acquisition of Southern Union by ETE under the terms of the second amended and restated agreement and plan of merger, as amended (which, for ease of understanding, is referred to generally throughout this document as the merger agreement), that is described in this document. In the merger, Merger Sub, a wholly owned subsidiary of ETE, will merge with and into Southern Union, which will continue as the surviving corporation.

The merger agreement is attached as Annex A to this document, and both ETE and Southern Union encourage you to read it carefully and in its entirety because it is the legal document that governs the merger.

Merger Consideration

Pursuant to the terms of the merger agreement, Southern Union stockholders may elect to receive, for each outstanding Southern Union share and subject to the limits described below, either $44.25 in cash or 1.00 ETE common unit (and cash in lieu of fractional ETE common units). This election is subject to the following limits:

 

   

The aggregate cash consideration will be capped at 60% of the aggregate merger consideration. Thus, if holders of more than 60% of the outstanding Southern Union shares make a cash election, the amount of cash per outstanding Southern Union share to be received by holders making a cash election will be reduced (pro rata across all outstanding Southern Union shares subject to a cash election), so that no more than 60% of the aggregate merger consideration is payable in cash and the remainder of the consideration in respect of outstanding Southern Union shares subject to a cash election will be payable in ETE common units at an exchange ratio of 1.00 ETE common unit per outstanding Southern Union share (and cash in lieu of fractional ETE common units).

 

   

The aggregate ETE common unit consideration will be capped at 50% of the aggregate merger consideration. Thus, if holders of more than 50% of the outstanding Southern Union shares make or are deemed to have made an equity election, the number of ETE common units per outstanding Southern Union share to be received by holders making an equity election will be reduced (pro rata across all outstanding Southern Union shares subject to an equity election), so that no more than 50% of the aggregate merger consideration is payable in ETE common units and the remainder of the consideration in respect of outstanding Southern Union shares subject to an equity election will be payable in cash at $44.25 per share.

Treatment of Southern Union Options and Other Equity Awards

Stock Options and Stock Appreciation Rights. Pursuant to Southern Union’s equity incentive plans, individual award agreements and the terms of the merger agreement, all stock options and stock appreciation rights outstanding immediately prior to the effective time will vest. To the extent not exercised prior thereto, all unexercised options and stock appreciation rights will be cancelled immediately prior to the effective time. Each stock option and stock appreciation right so cancelled that has an exercise price of less than $44.25 will be converted into the right to receive an amount in cash equal to $44.25 less (i) the applicable exercise price and (ii) any applicable deductions and withholdings required by law.

Restricted Stock. Shares of restricted stock for which restrictions have not otherwise lapsed or expired and are outstanding prior to the effective time will have their associated restrictions accelerate and expire immediately prior to the effective time and the total number of Southern Union shares subject to such restricted stock grant will be converted into the right to receive $44.25 in cash or 1.00 ETE common unit (at the election of the individual holders thereof), less all deductions and withholdings required by law (such deduction to come first from any cash payable as part of the consideration for such restricted stock and then by reducing the number of ETE common units otherwise payable as part of the consideration for such restricted stock (with the ETE common unit valued at the closing price thereof on the day prior to the closing of the merger for this purpose)).

 

 

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Restricted Share Units. Each unvested award of restricted share units with respect to Southern Union shares under a Southern Union stock plan that is outstanding immediately prior to the effective time will fully vest, and each Southern Union restricted share unit will be converted into the right to receive a lump sum cash payment equal to the greater of (i) $44.25 or (ii) the closing price of ETE common units on the NYSE on the closing date of the merger, multiplied by the total number of shares underlying such restricted share unit, less any applicable deductions and withholdings required by law.

Risk Factors

The merger is, and upon the completion of the merger, the combined company will be, subject to a number of risks, which are described in the section titled “Risk Factors” beginning on page 27. You should carefully read and consider these risks in deciding whether to vote for the adoption of the merger agreement and the transactions contemplated thereby, including the merger.

Special Meeting of Southern Union Stockholders

Where and when: The special meeting of Southern Union stockholders will take place at the Metropolitan Club, One East 60th Street, New York, New York 10022, on December 9, 2011 at 11:00 a.m., local time.

What Southern Union’s stockholders are being asked to vote on: At the special meeting, Southern Union’s stockholders will be asked to consider and vote on the following matters:

 

   

a proposal to adopt the merger agreement and the transactions contemplated thereby, including the merger;

 

   

a proposal to approve, on an advisory (non-binding) basis, the compensation to be received by Southern Union’s named executive officers in connection with the merger;

 

   

any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement; and

 

   

any proposal to transact such other business as may properly come before the special meeting and any adjournment or postponement thereof (at the present time, Southern Union knows of no other matters that will be presented for consideration at the special meeting).

Who may vote: You may vote at the special meeting if you owned Southern Union shares at the close of business on the record date, October 11, 2011. You may cast one vote for each Southern Union share that you owned on the record date.

How to vote: Please complete and submit the enclosed proxy card as soon as possible or transmit your voting instructions by using the telephone or internet procedures described on your proxy card.

Vote needed to adopt the merger agreement and the transactions contemplated thereby: The merger agreement and the transactions contemplated thereby, including the merger, must receive the approval of the holders of a majority of the outstanding Southern Union shares entitled to vote as of the record date.

Vote needed to approve, on an advisory (non-binding) basis, the compensation to be received by Southern Union’s named executive officers in connection with the merger: The advisory vote on the compensation to be received by Southern Union’s named executive officers in connection with the merger requires the affirmative vote of the holders of a majority of the outstanding Southern Union shares having voting power represented at the special meeting in person or by proxy and entitled to vote as of the record date. The vote of Southern Union stockholders on the compensation to be received by Southern Union’s named executive officers in connection with the merger is advisory in nature and will not be binding on ETE or the Southern Union Board and will not impact whether or not the compensation is paid.

 

 

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Vote needed to approve any adjournment of the special meeting: Any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding Southern Union shares having voting power represented at the special meeting in person or by proxy and entitled to vote as of the record date.

Financing Commitment

On July 19, 2011, ETE entered into a bridge commitment letter (the “Commitment Letter”) with Credit Suisse Securities (USA) LLC (“Credit Suisse”) and Credit Suisse AG (together, the “Credit Suisse Lenders”) that amended, restated and superseded a commitment letter entered into by ETE and the Credit Suisse Lenders on July 4, 2011. Pursuant to the Commitment Letter, the Credit Suisse Lenders have committed to provide a 364-day senior bridge term loan credit facility (the “Bridge Term Facility”) in an aggregate principal amount of up to $3.7 billion. As contemplated by the Commitment Letter, on October 17, 2011, ETE entered into a Senior Bridge Term Loan Credit Agreement (the “Credit Agreement”) with Credit Suisse AG, as administrative agent, the other lenders party thereto and Credit Suisse, as sole arranger and sole bookrunner. The Credit Agreement provides ETE with unsecured financing in the aggregate amount referenced above. ETE’s ability to borrow under the Credit Agreement is subject to the satisfaction of certain conditions precedent, including the delivery of certain documents requested by the administrative agent (such as financial statements, favorable opinions of counsel and customary corporate authorization documents) and the payment of relevant fees and expenses.

Support Agreement

Concurrently with the execution of the merger agreement, Mr. Lindemann, Chairman of the Board and Chief Executive Officer of Southern Union, Mr. Herschmann, Vice Chairman of the Board, President and Chief Operating Officer of Southern Union, and members of Mr. Lindemann’s family, who directly or indirectly own approximately 16,744,285 shares of Southern Union common stock (or approximately 20,139,036 shares when including unexercised options and shares of restricted stock which are not entitled to vote until exercise or the expiration of restrictions, respectively), representing approximately 13.43% of Southern Union’s outstanding shares of common stock, entered into a second amended and restated support agreement (which, for ease of understanding, is referred to generally throughout this document as the support agreement) with ETE and Merger Sub, which replaces and supersedes the support agreement previously entered into by those parties in connection with the execution of the first amended and restated merger agreement. The support agreement provides, among other things, that such stockholders will vote their shares in favor of adoption of the merger agreement unless there is a change in the recommendation of the Southern Union Board and that they will elect to receive the common unit consideration of ETE rather than the right to receive $44.25 in cash in the merger (other than with respect to unexercised options and shares held in the Southern Union Savings Plan, which will be treated as described above).

The foregoing description of the support agreement is qualified in its entirety by reference to the full text of the support agreement, which is attached as Annex B to this document and is incorporated herein by reference.

Southern Union’s Reasons for the Merger; Recommendation of the Southern Union Special Committee and the Southern Union Board

The Southern Union Board, acting upon the unanimous recommendation of the members of a Special Committee of the Southern Union Board (the “Southern Union Special Committee”), which committee is comprised solely of independent directors, has (i) approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger, and (ii) determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair and in the best interests of, Southern Union and Southern Union’s stockholders. Accordingly, the Southern Union Board recommends that Southern Union’s stockholders vote “FOR” the proposal to adopt the merger agreement and the transactions contemplated thereby, including the merger.

 

 

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In determining whether to approve the merger agreement and the transactions contemplated thereby, including the merger, the Southern Union Board considered the factors described in the section titled “Proposal 1 – The Merger—Southern Union’s Reasons for the Merger; Recommendation of the Southern Union Special Committee and the Southern Union Board” beginning on page 58.

Opinion of Southern Union’s Financial Advisors

Evercore

On July 19, 2011, Evercore Group L.L.C. (“Evercore”) delivered its oral opinion to the Southern Union Special Committee, which opinion was subsequently confirmed by delivery of a written opinion dated July 19, 2011, to the effect that, as of such date and based upon and subject to assumptions made, matters considered and limitations on the scope of review undertaken by Evercore as set forth in its opinion, the merger consideration was fair, from a financial point of view, to the holders of the shares of common stock of Southern Union entitled to receive such merger consideration.

The full text of the written opinion of Evercore, dated July 19, 2011, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex C to this document and incorporated herein by reference. You are urged to read Evercore’s opinion carefully and in its entirety. Evercore’s opinion was directed to the Southern Union Special Committee and addresses only the fairness, from a financial point of view, of the merger consideration to the holders of the shares of Southern Union common stock entitled to receive such merger consideration. The opinion does not address any other aspect of the merger and does not constitute a recommendation to the Southern Union Special Committee or to any other persons in respect of the merger, including as to how any holder of shares of Southern Union common stock should vote or act in respect of the merger. Evercore’s opinion does not address the relative merits of the merger as compared to other business or financial strategies that might be available to Southern Union, nor does it address the underlying business decision of Southern Union to engage in the merger. The summary of the Evercore opinion set forth herein is qualified in its entirety by reference to the full text of the opinion included as Annex C.

Goldman Sachs

Goldman, Sachs & Co. (“Goldman Sachs”) delivered its opinion to the Southern Union Special Committee that, as of July 19, 2011 and based upon and subject to the factors and assumptions set forth therein, the cash consideration and the ETE common unit consideration, taken in the aggregate (the “aggregate consideration”), to be paid to the holders of Southern Union common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated July 19, 2011, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex D to this document and incorporated herein by reference. Goldman Sachs provided its opinion for the information and assistance of the Southern Union Special Committee in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of Southern Union’s common stock should vote or make any election with respect to the merger or any other matter. Goldman Sachs expects to receive fees for its services in connection with the merger and Southern Union has agreed to indemnify Goldman Sachs against certain liabilities arising out of its engagement.

Interests of Southern Union’s Executive Officers and Directors in the Merger

In considering the recommendations of the Southern Union Special Committee and the Southern Union Board, Southern Union’s stockholders should be aware that some of the executive officers and directors of

 

 

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Southern Union have interests in the merger that may differ from, or may be in addition to, the interests of Southern Union’s stockholders. These interests may present such executive officers and directors with actual or potential conflicts of interest.

Each of the Southern Union Special Committee and the Southern Union Board was aware of these different and/or additional interests and considered them, among other matters, in their respective evaluations and negotiations of the merger agreement. Please see the section titled “Proposal 1 – The Merger—Interests of Southern Union’s Executive Officers and Directors in the Merger” beginning on page 83.

Regulatory Approvals Required for the Merger

Governmental and regulatory approvals are required to complete the transactions contemplated by the merger agreement. These approvals include approval under, or the expiration or termination of the applicable waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). ETE and Southern Union each filed the required HSR notification and report forms on June 28, 2011, and the 30-day statutory waiting period expired on July 29, 2011. At any time before or after the completion of the merger, the Department of Justice (the “DOJ”), the Federal Trade Commission (the “FTC”) or others could take action under the antitrust laws as deemed necessary or desirable in the public interest, including without limitation seeking to enjoin the completion of the merger or to permit completion only subject to regulatory concessions or conditions.

On July 13, 2011, ETE and Southern Union filed a joint application with the Public Service Commission of the State of Missouri (the “MPSC”), as amended on September 15, 2011, requesting an order from the MPSC authorizing Southern Union to take certain actions to allow ETE to acquire the equity interests of Southern Union, including its subsidiaries. On September 23, 2011, and as revised on October 6, 2011, the Federal Energy Regulatory Commission (“FERC”) authorized the transaction whereby PEI Power Corporation and PEI Power II, LLC, subsidiaries of Southern Union, will become indirect subsidiaries of ETE as a result of the merger. On September 8, 2011, ETE and Southern Union received authorization from the Federal Communications Commission (the “FCC”) for the transfer of control of private radio licenses utilized by Southern Union and its affiliates in connection with their natural gas operations. In addition, ETE and Southern Union have agreed to use their reasonable best efforts to file applications for the approval, if necessary, by the Massachusetts Department of Public Utilities (“MDPU”), and to make any other filings determined to be required as promptly as practicable.

ETE and Southern Union also intend to make all required filings under the Securities Act and the Exchange Act relating to the merger and obtain all other approvals and consents that may be necessary to give effect to the merger.

Appraisal Rights

Under Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”), holders of Southern Union common stock will have the right to obtain an appraisal of the value of their shares of Southern Union common stock in connection with the merger. To perfect appraisal rights, a Southern Union stockholder must not vote for the adoption of the merger agreement, must continue to hold their shares of common stock through the effective date and must strictly comply with all of the procedures required under Delaware law, including submitting a written demand for appraisal to Southern Union prior to the special meeting. Failure to strictly comply with Section 262 of the DGCL by a Southern Union stockholder may result in termination or waiver of that stockholder’s appraisal rights. Because of the complexity of Delaware law relating to appraisal rights, if any Southern Union stockholder is considering exercising his, her or its appraisal rights, ETE and Southern Union encourage such Southern Union stockholder to seek the advice of his, her or its own legal

 

 

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counsel. A summary of the requirements under Delaware law to exercise appraisal rights is included in this document in the section titled “Proposal 1 – The Merger—Appraisal Rights” beginning on page 94, and the text of Section 262 of the DGCL as in effect with respect to this transaction is included as Annex E to this document.

NYSE Listing of ETE Common Units

ETE’s common units currently trade on the NYSE under the ticker symbol “ETE.” ETE has agreed to use its reasonable efforts to cause the common units to be issued pursuant to the merger agreement to be approved for listing on the NYSE, subject to official notice of issuance.

Delisting and Deregistration of Southern Union Common Stock

Southern Union’s common stock currently trades on the NYSE under the ticker symbol “SUG.” If the merger is completed, Southern Union common stock will cease to be listed on the NYSE and will be deregistered under the Exchange Act.

Conditions to Completion of the Merger

The obligations of ETE, on one hand, and Southern Union, on the other hand, to complete the merger are subject to the fulfillment (or waiver) of the following conditions:

 

   

the merger agreement having been approved by the required vote of the holders of Southern Union common stock;

 

   

the absence of any injunction by any court or other tribunal of competent jurisdiction prohibiting the completion of the merger;

 

   

the absence of a material adverse effect on ETE or Southern Union;

 

   

the expiration or termination of the applicable waiting period under the HSR Act, required approvals having been obtained from FERC and MPSC and, if necessary, MDPU, and no final order by a federal or state governmental entity prohibiting the merger;

 

   

the ETE common units to be issued in the merger having been approved for listing on the NYSE;

 

   

the effectiveness of the registration statement on Form S-4 (of which this document forms a part) and no stop order or pending or threatened proceeding seeking a stop order;

 

   

the representations and warranties of the other party being true and correct, subject to certain materiality thresholds, as of the date of the merger agreement and as of the closing date of the merger; and

 

   

the other party having performed or complied with, in all material respects, all of the obligations and covenants required to be performed or complied with by it under the merger agreement at or prior to the closing date of the merger.

In addition, Southern Union’s obligations to complete the merger are further subject to: (i) ETE having received opinions from its counsel to the effect that, for U.S. federal income tax purposes, (a) ETE should not be treated as an investment company for purposes of Section 721(b) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and (b) 90% of ETE’s current gross income constitutes qualifying income within the meaning of Section 7704(d) of the Internal Revenue Code and ETE will be treated as a partnership pursuant to Section 7704(c) of the Internal Revenue Code; and (ii) Southern Union having received opinions from its counsel to the effect that for U.S. federal income tax purposes the merger should qualify under Section 721(a) of the Internal Revenue Code with respect to holders of Southern Union shares to the extent they receive ETE common units in the

 

 

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merger, provided this result may not apply to the extent such holders receive money or other property, other than operating cash flow distributions (as such term is defined in Treasury regulation section 1.707-4), from ETE on any date through and including the second anniversary of the closing of the merger.

The merger agreement does not condition the closing of the merger on ETE’s ability to obtain financing for the transaction.

Neither ETE nor Southern Union can give any assurance that all of the conditions to the merger will either be satisfied or waived or that the merger will occur.

Expected Timing of the Merger

ETE and Southern Union currently expect to complete the merger in the first quarter of 2012, subject to the receipt of required Southern Union stockholder and regulatory approvals and the satisfaction or waiver of the other conditions to completion of the merger. Because many of the conditions to completion of the merger are beyond the control of ETE and Southern Union, exact timing for completion of the merger cannot be predicted with any amount of certainty.

Non-Solicitation by Southern Union

The merger agreement contains detailed provisions that restrict Southern Union, its subsidiaries and any of their respective officers, directors or employees or their representatives from, directly or indirectly, soliciting, initiating, seeking or knowingly encouraging or facilitating, the submission of any other acquisition proposal (as defined in the section of this document titled “The Merger Agreement—Non-Solicitation by Southern Union” on page 111). The merger agreement also contains restrictions on Southern Union, its subsidiaries and their respective officers, directors or employees or their representatives from participating in any discussions or negotiations regarding any unsolicited acquisition proposal. The merger agreement does not, however, prohibit the Southern Union Board from considering and recommending to Southern Union stockholders an alternative transaction with a third party if specified conditions are met, including the payment to ETE of the breakup fee required by the merger agreement.

Termination of Merger Agreement

The merger agreement may be terminated at any time prior to the completion of the merger by mutual consent of ETE and Southern Union. The merger agreement may also be terminated by either ETE or Southern Union if:

 

   

the merger is not completed on or prior to June 30, 2012 (or December 31, 2012, if the applicable waiting period under the HSR Act has not expired, or the required approvals have not been obtained from FERC, MPSC and, if necessary, MDPU), the later of such date referred to herein as the end date, unless the party seeking to terminate has materially breached the merger agreement and such material breach caused the failure of the closing to occur by the end date;

 

   

any injunction prohibiting the consummation of the merger is final and non-appealable and the party seeking to terminate used its reasonable best efforts to remove such injunction; or

 

   

the Southern Union stockholders do not approve the merger agreement.

ETE may also terminate the merger agreement if:

 

   

(i) prior to Southern Union stockholder approval, the Southern Union Board changes its recommendation or approves or recommends to Southern Union stockholders an acquisition

 

 

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transaction, or (ii) Southern Union willfully and materially breaches any of its obligations not to solicit acquisition proposals or change its recommendation pursuant to the merger agreement; or

 

   

Southern Union has breached or failed to perform any of its representations, warranties, covenants or other agreements, which breach or failure to perform (i) would result in a failure of a closing condition and (ii) by its nature, cannot be cured prior to the end date or, if such breach or failure is capable of being cured by the end date, Southern Union does not or ceases to diligently attempt to cure such breach or failure after receiving written notice from ETE describing such breach or failure in reasonable detail (provided that ETE is not then in material breach of the merger agreement).

Southern Union may also terminate the merger agreement:

 

   

if ETE has breached or failed to perform any of its representations, warranties, covenants or other agreements, which breach or failure to perform (i) would result in a failure of a closing condition and (ii) by its nature, cannot be cured prior to the end date, or, if such breach or failure is capable of being cured by the end date, ETE does not or ceases to diligently attempt to cure such breach or failure after receiving written notice from Southern Union describing such breach or failure in reasonable detail (provided that Southern Union is not then in material breach of the merger agreement); or

 

   

prior to obtaining Southern Union stockholder approval, in order to enter into a definitive agreement with respect to a superior offer (as defined in the section of this document titled “The Merger Agreement—Non-Solicitation by Southern Union” on page 111), provided that Southern Union has not breached the non-solicitation obligations set forth in the merger agreement and Southern Union has paid all applicable breakup fees and expenses to ETE.

Expense Reimbursement; Breakup Fee

Southern Union has agreed to reimburse ETE for its expenses up to $54.0 million if:

 

   

Southern Union or ETE terminates the merger agreement because Southern Union stockholder approval is not obtained at the special meeting of Southern Union stockholders (including any adjournments or postponements thereof) and (i) prior to such termination any person has made and publicly announced or disclosed an acquisition proposal and (ii) within 12 months after such termination, Southern Union has consummated or entered into an agreement to consummate (which may be consummated after such 12-month period) an acquisition transaction;

 

   

Southern Union terminates the merger agreement because Southern Union stockholder approval is not obtained at the special meeting of Southern Union stockholders (including any adjournments or postponements thereof);

 

   

ETE terminates the merger agreement due to Southern Union’s breach or failure to perform any of its representations, warranties, covenants or other agreements contained in the merger agreement and such breach or failure (i) would result in a failure of a closing condition and (ii) cannot be cured prior to the end date or, if by its nature such breach or failure is capable of being cured by the end date, Southern Union does not or ceases to diligently attempt to cure such breach or failure after receiving written notice from ETE;

 

   

ETE terminates the merger agreement (i) prior to Southern Union stockholder approval, due to a change of recommendation by the Southern Union Board or the approval or recommendation by the Southern Union Board of an acquisition transaction, or (ii) because Southern Union has willfully and materially breached any of its obligations not to solicit acquisition proposals or change its recommendation pursuant to the merger agreement; or

 

   

Southern Union terminates the merger agreement after having complied with the covenants that permit Southern Union to terminate the merger agreement to enter into a definitive agreement regarding a superior offer.

 

 

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In addition to any payment to ETE of its expenses, Southern Union has agreed to pay ETE a breakup fee of $181.3 million if:

 

   

ETE terminates the merger agreement due to Southern Union’s breach or failure to perform any of its representations, warranties, covenants or other agreements contained in the merger agreement and such breach or failure (i) would result in a failure of a closing condition and (ii) cannot be cured prior to the end date or, if by its nature such breach or failure is capable of being cured by the end date, Southern Union does not or ceases to diligently attempt to cure such breach or failure after receiving written notice from ETE;

 

   

ETE terminates the merger agreement (i) prior to Southern Union stockholder approval, due to a change of recommendation by the Southern Union Board or the approval or recommendation by the Southern Union Board of an acquisition transaction, or (ii) because Southern Union has willfully and materially breached any of its obligations not to solicit acquisition proposals or change its recommendation pursuant to the merger agreement;

 

   

Southern Union terminates the merger agreement after having complied with the covenants that permit Southern Union to terminate the merger agreement to enter into a definitive agreement regarding a superior offer; or

 

   

ETE or Southern Union terminates the merger agreement due to the passage of the end date or the failure to obtain stockholder approval and (i) prior to the stockholder approval to be obtained at the Southern Union special meeting any person has made and publicly announced or disclosed an acquisition proposal and (ii) within 12 months after such termination, Southern Union has consummated or entered into an agreement to consummate (which may be consummated after such 12-month period) an acquisition transaction.

ETE has agreed to pay a breakup fee of $181.3 million and reimburse Southern Union for its expenses up to $54.0 million if Southern Union terminates the merger agreement due to ETE’s breach or failure to perform any of its representations, warranties, covenants or other agreements contained in the merger agreement (other than ETE’s failure to obtain the financing or alternative financing) and such breach or failure (i) would result in a failure of a closing condition and (ii) cannot be cured prior to the End Date or, if by its nature such breach or failure is capable of being cured by the end date, ETE does not or ceases to diligently attempt to cure such breach or failure after receiving written notice from Southern Union.

Accounting Treatment

In accordance with accounting principles generally accepted in the United States (“GAAP”), ETE will account for the merger using the acquisition method of accounting for business combinations.

Material U.S. Federal Income Tax Consequences

The U.S. federal income tax consequences to a Southern Union stockholder of the merger and of owning and disposing of ETE common units received in the merger are complex. Southern Union stockholders should consult their own tax advisors regarding the U.S. federal income tax consequences applicable to them in light of their particular circumstances. For a more detailed discussion of the material U.S. federal income tax consequences to Southern Union stockholders of the merger and of ownership and disposition of ETE common units received in the merger, please see the discussion in the section titled “Material U.S. Federal Income Tax Consequences” beginning on page 125.

Comparison of Rights of ETE Unitholders and Southern Union Stockholders

The rights of Southern Union stockholders are currently governed by Southern Union’s amended and restated certificate of incorporation, bylaws and the DGCL. Southern Union stockholders who receive the merger

 

 

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consideration in ETE common units will become unitholders of ETE upon completion of the merger. Thereafter, their rights will be governed by ETE’s certificate of limited partnership, partnership agreement, as amended, and the Delaware Revised Uniform Limited Partnership Act. As a result, these Southern Union stockholders will have different rights once they become unitholders of ETE due to the differences in the governing documents of and laws applicable to ETE and Southern Union. The key differences are described in the section titled “Comparison of Rights of ETE Unitholders and Southern Union Stockholders” beginning on page 154.

Litigation Relating to the Merger

Since the initial public announcement of the merger by ETE and Southern Union on June 16, 2011, Southern Union, the members of Southern Union’s Board, ETE and Merger Sub have been named as defendants in lawsuits brought by and on behalf of Southern Union stockholders challenging the proposed transaction. These lawsuits seek, among other things, to enjoin the consummation of the merger. ETE believes that the claims asserted against it in these lawsuits are without merit and plans to vigorously defend against them. Southern Union and the members of the Southern Union Board also believe that the claims asserted against them in these lawsuits are without merit and plan to vigorously defend against them. See “Proposal 1 – The Merger—Litigation Relating to the Merger” beginning on page 98.

Proposal 2 – Advisory Vote on Executive Compensation

In accordance with Section 14A of the Exchange Act, Southern Union is providing stockholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be payable to Southern Union’s named executive officers in connection with the merger as reported on the “Summary of Potential Payments to Southern Union’s Executive Officers” table on page 88. The Southern Union Board recommends that you vote “FOR” the proposal to approve, on an advisory (non-binding) basis, the compensation payable to Southern Union’s named executive officers in connection with the merger.

Citrus Merger

On July 19, 2011, ETE entered into an amended and restated agreement and plan of merger (as amended, the “Citrus Merger Agreement”) with ETP. Pursuant to the merger agreement, immediately prior to the effective time of the ETE and Southern Union merger, ETE will assign and Southern Union will assume the benefits and obligations of ETE under the Citrus Merger Agreement, and PEPL Holdings, LLC, a newly formed indirect subsidiary of Southern Union (“PEPL Holdings”), will guarantee by collection (on a non recourse basis to Southern Union) all of the indebtedness to be incurred by ETP to fund the cash portion of the merger consideration. Under the Citrus Merger Agreement, it is anticipated that Southern Union will cause the contribution to ETP of its 50% interest in Citrus Corp., which owns 100% of the Florida Gas Transmission pipeline system and is currently jointly owned by Southern Union and El Paso Corporation (the “Citrus Merger”). The Citrus Merger will be effected through the merger of Citrus ETP Acquisition, L.L.C., a Delaware limited liability company (“Citrus ETP Acquisition”) and wholly owned subsidiary of ETP with and into CrossCountry Energy, LLC, a Delaware limited liability company and wholly owned subsidiary of Southern Union that indirectly owns a 50% interest in Citrus Corp. (“CrossCountry”). In connection with the Citrus Merger, Southern Union will receive approximately $2.0 billion, consisting of $1.895 billion in cash and $105 million of ETP common units, with the value of the ETP common units based on the volume-weighted average trading price for the ten consecutive trading days ending immediately prior to the date that is three trading days prior to the closing date of the Citrus Merger. In order to increase the expected accretion to be derived from the Citrus Merger, ETE has agreed to relinquish its rights to approximately $220 million of the incentive distributions from ETP that ETE would otherwise be entitled to receive (as owner of ETP’s general partner) over 16 consecutive quarters following the closing of the Citrus Merger.

 

 

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Selected Consolidated Historical Financial Data of Energy Transfer Equity, L.P.

The following table shows ETE’s selected audited consolidated historical financial data as of and for each of the years ended December 31, 2010, 2009 and 2008, for each of the fiscal years ended August 31, 2007 and 2006, and for the four months ended December 31, 2007 and unaudited consolidated financial data for each of the six months ended June 30, 2011 and 2010 and are derived from ETE’s consolidated financial statements. You should read the following data in connection with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto set forth in ETE’s Annual Report on Form 10-K for the year ended December 31, 2010 and in ETE’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, which are incorporated by reference into this document. See “Where You Can Find More Information” beginning on page 169. See also the unaudited pro forma financial information set forth elsewhere in this document regarding the proposed merger with Southern Union. The following information is only a summary and is not necessarily indicative of the results of future operations of ETE.

ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS DATA AND BALANCE SHEET DATA

(Dollars in thousands, except per unit data)

 

    Six Months Ended
June 30,
    Years Ended December 31,     Four  Months
Ended
December  31,
2007
    Years Ended
August 31,
 
Statement of operations data:   2011     2010     2010     2009     2008       2007     2006  
    (Unaudited)                                      

Revenues:

             

Natural gas operations

  $ 3,157,908      $ 2,447,477      $ 5,167,945      $ 4,115,806      $ 7,653,156      $ 1,832,192      $ 5,385,892      $ 6,877,512   

Retail propane

    748,762        730,586        1,314,973        1,190,524        1,514,599        471,494        1,179,073        799,358   

Other

    57,356        56,446        115,214        110,965        125,612        45,656        227,072        182,226   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    3,964,026        3,234,509        6,598,132        5,417,295        9,293,367        2,349,342        6,792,037        7,859,096   

Gross margin

    1,498,448        1,169,191        2,486,795        2,295,239        2,355,287        675,688        1,713,831        1,290,780   

Depreciation and amortization

    287,786        184,366        431,199        325,024        274,372        75,406        191,383        129,636   

Operating income

    624,804        518,185        1,036,729        1,110,398        1,098,903        316,651        809,336        575,540   

Interest expense, net of interest capitalized

    349,446        250,707        624,887        468,420        357,541        103,375        279,986        150,646   

Income from continuing operations before income tax expense

    320,871        192,781        351,562        707,100        683,562        192,758        563,359        433,907   

Income tax expense(1)

    15,127        9,264        13,738        9,229        3,808        9,949        11,391        23,015   

Income from continuing operations

    305,744        183,517        337,824        697,871        679,754        182,809        551,968        410,892   

Net income attributable to noncontrolling interest

    150,819        51,558        143,822        255,398        304,710        90,132        232,608        303,752   

Basic income from continuing operations per limited partner unit

    0.69        0.59        0.86        1.98        1.68        0.41        1.56        0.80   

Diluted income from continuing operations per limited partner unit

    0.69        0.59        0.86        1.98        1.68        0.41        1.55        0.79   

Cash distribution per unit(2)

    1.185        1.08        2.16        2.14        1.91        0.55        1.46        2.56   

Balance sheet data:

               

Current assets

    1,398,971        1,084,534        1,291,010        1,267,959        1,180,995        1,403,796        1,050,578        1,302,735   

Total assets

    19,866,158        16,361,954        17,378,730        12,160,509        11,069,902        9,462,094        8,183,089        5,924,141   

Current liabilities

    1,259,420        1,183,068        1,081,075        889,745        1,208,921        1,241,433        932,815        1,020,787   

Long-term debt, less current maturities

    11,123,820        8,776,173        9,346,067        7,750,998        7,190,357        5,870,106        5,198,676        3,205,646   

Total equity

    6,763,882        5,630,258        6,247,732        3,220,251        2,339,316        2,091,156        1,835,300        1,484,878   

Other financial data:

               

Cash flow provided by operating activities

    698,337        801,936        1,086,879        723,461        1,143,720        208,635        1,006,320        502,928   

Cash flow used in investing activities

    (2,744,539     (786,185     (1,829,979     (1,345,756     (2,015,585     (995,943     (2,158,090     (1,244,406

Cash flow provided by financing activities

    2,108,409        183        761,049        598,587        907,331        766,515        1,202,916        734,223   

 

(1) As a partnership, ETE is generally not subject to income taxes. However, certain of ETP’s and Regency’s subsidiaries are corporations subject to income taxes.

 

(2) The cash distribution per unit for fiscal year 2006 includes the special distribution of $0.0325 per unit related to the proceeds ETP received in connection with the settlement of litigation with SCANA Corporation, Cornerstone Ventures, L.P. and Suburban Propane, L.P.

 

 

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Selected Consolidated Historical Financial Data of Southern Union Company

The following table shows Southern Union’s selected audited consolidated historical financial data as of and for each of the years ended December 31, 2010, 2009, 2008, 2007 and 2006 and unaudited consolidated financial data as of and for each of the six months ended June 30, 2011 and 2010 and are derived from Southern Union’s consolidated financial statements. You should read the following data in connection with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto set forth in Southern Union’s Annual Report on Form 10-K for the year ended December 31, 2010 and in Southern Union’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, which are incorporated by reference into this document. See “Where You Can Find More Information” beginning on page 169. See also the unaudited pro forma financial information set forth elsewhere in this document regarding the proposed merger with ETE. The following information is only a summary and is not necessarily indicative of the results of future operations of Southern Union.

SOUTHERN UNION COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS DATA AND BALANCE SHEET DATA

(Dollars in thousands, except per share amounts)

 

    Six Months Ended
June 30,
    Years Ended December 31,  
    2011     2010     2010     2009     2008     2007     2006 (1)(2)(3)  
    (Unaudited)                                

Total operating revenues

  $ 1,378,429      $ 1,332,090      $ 2,489,913      $ 2,179,018      $ 3,070,154      $ 2,616,665      $ 2,340,144   

Earnings from unconsolidated investments

    51,749        46,120        105,415        80,790        75,030        100,914        141,370   

Net earnings (loss):

             

Continuing operations

    120,435        131,349        242,648        179,580        295,151        228,711        199,718   

Discontinued operations(4)

    —          —          (18,100     —          —          —          (152,952

Available for common stockholders

    120,435        123,713        216,213        170,897        279,412        211,346        46,766   

Net earnings (loss) per diluted common share(5)

             

Continuing operations

    0.96        0.99        1.87        1.37        2.26        1.75        1.70   

Discontinued operations

    —          —          (0.14     —          —          —          (1.30

Available for common stockholders

    0.96        0.99        1.73        1.37        2.26        1.75        0.40   

Total assets

    8,190,069        7,989,115        8,238,543        8,075,074        7,997,907        7,397,913        6,782,790   

Stockholders’ equity

    2,605,251        2,466,908        2,526,982        2,469,946        2,367,952        2,205,806        2,050,408   

Current portion of long-term debt and capital lease obligation

    816,272        880        1,083        140,500        60,623        434,680        461,011   

Long-term debt and capital lease obligation, excluding current portion

    2,705,534        3,421,079        3,520,906        3,421,236        3,257,434        2,960,326        2,689,656   

Cash dividends declared on common stock

    37,409        37,337        74,701        74,481        74,384        53,968        46,289   

 

(1) Includes the impact of the March 1, 2006 acquisition of Sid Richardson Energy Services, Ltd. and related entities, and the August 24, 2006 dispositions of PG Energy and the Rhode Island operations of New England Gas Company. See note 4 below for additional related information regarding the asset dispositions.

 

(2) Southern Union’s investment in CCE Holdings was accounted for using the equity method until it became a wholly owned subsidiary on December 1, 2006.

 

(3) Net earnings from continuing operations are net of dividends on preferred stock of $17.4 million for the year ended December 31, 2006.

 

(4) On August 24, 2006, Southern Union completed the sales of the assets of its PG Energy natural gas distribution division to UGI Corporation and the Rhode Island operations of its New England Gas Company natural gas distribution division to National Grid USA. These dispositions were accounted for as discontinued operations in the Consolidated Statement of Operations. In 2010, Southern Union recorded an estimated $18.1 million charge to earnings related to the 2006 discontinued operations.

 

(5) Earnings per share for all periods presented were computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period.

 

 

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Selected Unaudited Pro Forma Condensed Combined Financial Information

The following selected unaudited pro forma condensed combined balance sheet data as of June 30, 2011 of ETE has been prepared to give effect to (i) ETP’s transaction with AmeriGas, announced on October 17, 2011, whereby ETP has agreed to contribute its propane operations to AmeriGas in exchange for approximately $2.9 billion in cash and common units representing limited partner interests in AmeriGas (the “Propane Transaction”) and (ii) the Southern Union merger as if both transactions had occurred on June 30, 2011. The following selected unaudited pro forma condensed combined statement of operations data of ETE for the six months ended June 30, 2011 and for the year ended December 31, 2010 have been prepared to give effect to ETP’s transaction with AmeriGas and the Southern Union merger as if both transactions had occurred on January 1, 2010.

The following selected unaudited pro forma condensed combined financial information is not necessarily indicative of the results that might have occurred had ETP’s transaction with AmeriGas and the Southern Union merger taken place on June 30, 2011 for balance sheet purposes, and on January 1, 2010 for statement of operations purposes, and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section titled “Risk Factors.”

ENERGY TRANSFER EQUITY, L.P.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

As of June 30, 2011

(in thousands)

 

ASSETS

  ETE
Historical
    Propane Transaction
Pro Forma
Adjustmentsa
    ETE as adjusted
for Propane
Transaction
    Southern
Union
Historical
    Southern
Union
Merger
Pro Forma
Adjustments
    ETE
Pro Forma
 

Current Assets

           

Cash and cash equivalents

  $ 148,471      $ (34,282   $ 114,189      $ 3,013      $ —        $ 117,202   

Marketable securities

    1,996        (1,985     11        —          —          11   

Accounts receivable, net of allowance for doubtful accounts

    642,928        (71,592     571,336        262,293        —          833,629   

Accounts receivable from related companies

    82,510        (5,715     76,795        7,863        —          84,658   

Inventories

    348,177        (74,485     273,692        174,040        —          447,732   

Exchanges receivable

    19,451        —          19,451        72,006        —          91,457   

Price risk management assets

    13,104        (246     12,858        9        —          12,867   

Other current assets

    142,334        (5,345     136,989        83,628        —          220,617   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    1,398,971        (193,650     1,205,321        602,852        —        $ 1,808,173   

Property, Plant and Equipment, net

    13,774,472        (779,133     12,995,339        5,697,513        1,897,401 b      20,590,253   

Advances to and investments in affiliates

    1,350,627        1,319,000        2,669,627        1,587,863        438,336 b      4,695,826   

Long-term price risk management assets

    7,468        (30     7,438        —          —          7,438   

Goodwill

    2,008,896        (613,106     1,395,790        89,227        1,469,177 b      2,954,194   

Intangibles and other assets, net

    1,325,724        (159,849     1,165,875        212,614        (40,655 )b      1,337,834   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 19,866,158      $ (426,768   $ 19,439,390      $ 8,190,069      $ 3,764,259      $ 31,393,718   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the

unaudited pro forma condensed combined financial statements.

 

 

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Table of Contents

ENERGY TRANSFER EQUITY, L.P.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

As of June 30, 2011

(in thousands)

 

LIABILITIES AND EQUITY

   ETE
Historical
    Propane
Transaction
Pro Forma
Adjustmentsa
    ETE as
adjusted for
Propane
Transaction
    Southern
Union
Historical
    Southern
Union
Merger
Pro Forma
Adjustments
    ETE
Pro Forma
 

Current liabilities:

            

Accounts payable

   $ 451,795      $ (27,330   $ 424,465      $ 198,357      $ —        $ 622,822   

Accounts payable to related companies

     14,885        99,654        114,539        —          —          114,539   

Accrued distributions to ETE partners

     139,790        —          139,790        —          —          139,790   

Exchanges payable

     19,461        —          19,461        152,211        —          171,672   

Price risk management liabilities

     20,729        —          20,729        56,200        —          76,929   

Accrued and other current liabilities

     589,762        (86,411     503,351        198,218        —          701,569   

Notes payable and current maturities of
long-term debt

     22,998        (22,955     43        1,011,751        (6,902 )b      1,004,892   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     1,259,420        (37,042     1,222,378        1,616,737        (6,902     2,832,213   

Long-term debt, less current maturities

     11,123,820        (1,337,479     9,786,341        2,705,534        3,647,207 b      16,139,082   

Series A Units

     334,170        —          334,170        —          —          334,170   

Long-term price risk management liabilities

     60,934        —          60,934        12,310        —          73,244   

Accumulated deferred income taxes

     —          —          —          1,059,345        834,699 b      1,894,044   

Other non-current liabilities

     252,892        (2,644     250,248        190,892        —          441,140   

Commitments and contingencies

            

Preferred units of subsidiary

     71,040        —          71,040        —          —          71,040   

Equity:

            

Stockholders’ Equity

     —          —          —          2,605,251        (2,605,251 )b      —     

Partners’ Capital:

            

General Partner

     88       
756
  
    844        —          —          844   

Limited Partners:

            

Common Unitholders

     (23,273     243,730       
220,457
  
    —          1,894,506 b      2,114,963   

Accumulated other comprehensive loss

     (356     (1,148     (1,504     —          —          (1,504
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total partners’ capital (deficit)

     (23,541     243,338        219,797        —          1,894,506        2,114,303   

Noncontrolling interest

     6,787,423        707,059        7,494,482        —          —          7,494,482   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     6,763,882        950,397        7,714,279        2,605,251        (710,745     9,608,785   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 19,866,158      $ (426,768   $ 19,439,390      $ 8,190,069      $ 3,764,259      $ 31,393,718   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the

unaudited pro forma condensed combined financial statements.

 

 

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Table of Contents

ENERGY TRANSFER EQUITY, L.P.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

Six Months Ended June 30, 2011

(Dollars in thousands, except per unit data)

 

    ETE
Historical
    Propane
Transaction
Pro Forma
Adjustmentsa
    ETE as
adjusted

for Propane
Transactions
    Southern
Union
Historical
    Southern
Union
Merger
Pro Forma
Adjustments
    ETE
Pro Forma
 

Revenue:

           

Natural gas operations

  $ 3,157,908      $ —        $ 3,157,908      $ 1,369,870      $ —        $ 4,527,778   

Retail propane

    748,762       
(748,762)
  
    —          —         
—  
  
    —     

Other

    57,356        (57,356)        —          8,559        —          8,559   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    3,964,026        (806,118)        3,157,908        1,378,429        —          4,536,337   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

           

Cost of products sold—natural gas operations

    2,006,626        —          2,006,626        741,207        —          2,747,833   

Cost of products sold—retail propane

    445,592        (445,592)        —          —          —          —     

Cost of products sold—other

    13,360        (13,360)        —          —          —          —     

Operating expenses(1)

    443,413        (171,037)        272,376        244,852       
—  
  
    517,228   

Depreciation and amortization

    287,786        (41,776)        246,010        118,622        37,948 c      402,580   

Selling, general and administrative

    142,445        (25,955)        116,490        50,694        —          167,184   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    3,339,222        (697,720)        2,641,502        1,155,375        37,948        3,834,825   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    624,804        (108,398)        516,406        223,054        (37,948)        701,512   

Other income (expense):

           

Interest expense, net of interest capitalized

    (349,446)        (33,591)        (383,037)        (110,504)       
(97,094)
d 
    (568,662)   
            21,973 e   

Equity in earnings (losses) of affiliates

    54,260        46,399        100,659        51,749        (5,479) f      146,929   

Gains (losses) on disposal of assets

    (2,435)        2,208        (227)        —          —          (227)   

Gains (losses) on non-hedged interest rate derivatives

    3,403        —          3,403        —          —          3,403   

Other, net

    (9,715)        (309)        (10,024)        366        —          (9,658)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

    320,871        (93,691)        227,180        164,665        (118,548)        273,297   

Income tax expense

    15,127        (534)        14,593        44,230        (8,828) c      49,995   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    305,744        (93,157)        212,587        120,435        (109,720)        223,302   

Less: Net income attributable to noncontrolling interest

    150,819        (68,324)        82,495        —          19,272 g      101,767   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to partners

    154,925        (24,833)        130,092        120,435        (128,992)        121,535   

General partner’s interest in net income

    479        (76)        403        —          (172) h      231   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Limited partners’ interest in net income

  $ 154,446      $ (24,757)      $ 129,689      $ 120,435        (128,820)      $ 121,304   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per limited partner unit

  $ 0.69              $ 0.44   
 

 

 

           

 

 

 

Basic average number of units outstanding

    222,963,741                273,322,741   
 

 

 

           

 

 

 

Diluted net income per limited partner unit

  $ 0.69              $ 0.44   
 

 

 

           

 

 

 

Diluted average number of units outstanding

    222,963,741                273,322,741   
 

 

 

           

 

 

 

 

(1) Includes Southern Union historical operating, maintenance and general expenses.

The accompanying notes are an integral part of the

unaudited pro forma condensed combined financial statements.

 

 

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Table of Contents

ENERGY TRANSFER EQUITY, L.P.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

Year Ended December 31, 2010

(Dollars in thousands, except per unit data)

 

    ETE
Historical
    Propane
Transaction
Pro Forma
Adjustmentsa
    ETE as adjusted
for Propane
Transaction
    Southern
Union
Historical
    Southern
Union
Merger
Pro  Forma

Adjustments
    ETE
Pro Forma
 

Revenues:

           

Natural gas operations

  $ 5,167,945      $ —        $ 5,167,945      $ 2,475,986      $ —        $ 7,643,931   

Retail propane

    1,314,973        (1,314,973)        —          —          —          —     

Other

    115,214        (115,214)        —          13,927        —          13,927   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    6,598,132        (1,430,187)        5,167,945        2,489,913        —          7,657,858   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

           

Cost of products sold—natural gas operations

    3,328,754        —          3,328,754        1,243,749        —          4,572,503   

Cost of products sold—retail propane

    752,926        (752,926)        —          —          —          —     

Cost of products sold—other

    29,657        (29,657)        —          —          —          —     

Operating expenses (1)

    784,546        (343,022)        441,524        463,517        —          905,041   

Depreciation and amortization

    431,199        (82,640)        348,559        228,637        75,896 c      653,092   

Selling, general and administrative

    234,321        (45,936)        188,385        93,395        —          281,780   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    5,561,403        (1,254,181)        4,307,222        2,029,298        75,896        6,412,416   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    1,036,729        (176,006)        860,723        460,615        (75,896)        1,245,442   

Other income (expense):

           

Interest expense, net of interest capitalized

    (624,887)        (65,062)        (689,949)        (216,665)        (194,187) d      (1,064,301)   
            36,500 e   

Equity in earnings (losses) of affiliates

    65,220        18,600        83,820        105,415        (10,958) f      178,277   

Losses on disposal of assets

    (5,255)        1,027        (4,228)        —          —          (4,228)   

Losses on non-hedged interest rate derivatives

    (52,357)        —          (52,357)        —          —          (52,357)   

Impairment of investment in affiliate

    (52,620)        —          (52,620)        —          —          (52,620)   

Other, net

    (15,268)        (1,941)        (17,209)        312        —          (16,897)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

    351,562        (223,382)        128,180        349,677        (244,541)        233,316   

Income tax expense

    13,738        (1,655)        12,083        107,029        (20,817) c      98,295   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    337,824        (221,727)        116,097        242,648        (223,724)        135,021   

Income from discontinued operations

    (1,244)        —          (1,244)        (18,100)        —          (19,344)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    336,580        (221,727)        114,853        224,548        (223,724)        115,677   

Less: net income attributable to noncontrolling interest

    143,822        (152,712)        (8,890)        —          35,041 g      26,151   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to partners

    192,758        (69,015)        123,743        224,548        (258,765)        89,526   

Preferred Stock Dividends

    —          —          —          5,040        —          5,040   

Loss on Extinguishment of Preferred Stock

    —          —          —          3,295        —          3,295   

General partner’s interest in net income

    597        (213)        384        —          (371) h      13   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Limited partners’ interest in net income

  $ 192,161      $ (68,802)      $ 123,359      $ 216,213      $ (258,394)      $ 81,178   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per limited partner unit

  $ 0.86              $ 0.30   
 

 

 

           

 

 

 

Basic average number of units outstanding

    222,941,156                273,300,156   
 

 

 

           

 

 

 

Diluted net income per limited partner unit

  $ 0.86              $ 0.30   
 

 

 

           

 

 

 

Diluted average number of units outstanding

    222,941,156                273,300,156   
 

 

 

           

 

 

 

 

(1) Includes Southern Union historical operating, maintenance and general expenses.

The accompanying notes are an integral part of the

unaudited pro forma condensed combined financial statements.

 

 

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Basis of Pro Forma Presentation

ETE, Merger Sub and Southern Union are parties to a second amended and restated agreement and plan of merger dated as of July 19, 2011, as amended. The merger agreement modifies certain terms of the Amended and Restated Agreement and Plan of Merger entered into by ETE, Merger Sub and Southern Union on July 4, 2011, which amended and restated the Agreement and Plan of Merger entered into by the parties thereto on June 15, 2011. Under the terms of the merger agreement, Merger Sub will merge with and into Southern Union, with Southern Union continuing as the surviving entity and becoming a wholly owned subsidiary of ETE.

Under the merger agreement, Southern Union stockholders may elect to receive, for each outstanding Southern Union share they hold and subject to the limits described below, either $44.25 in cash or 1.00 ETE common unit (and cash in lieu of fractional ETE common units). This election is subject to the following limits:

 

   

The aggregate cash consideration will be capped at 60% of the aggregate merger consideration. Thus, if holders of more than 60% of the outstanding Southern Union shares make a cash election, the amount of cash per outstanding Southern Union share to be received by holders making a cash election will be reduced (pro rata across all outstanding Southern Union shares subject to a cash election), so that no more than 60% of the aggregate merger consideration is payable in cash and the remainder of the consideration in respect of outstanding Southern Union shares subject to a cash election will be payable in ETE common units at an exchange ratio of 1.00 ETE common unit per outstanding Southern Union share (and cash in lieu of fractional ETE common units).

 

   

The aggregate ETE common unit consideration will be capped at 50% of the aggregate merger consideration. Thus, if holders of more than 50% of the outstanding Southern Union shares make or are deemed to have made an equity election, the number of ETE common units per outstanding Southern Union share to be received by holders making an equity election will be reduced (pro rata across all outstanding Southern Union shares subject to an equity election), so that no more than 50% of the aggregate merger consideration is payable in ETE common units and the remainder of the consideration in respect of outstanding Southern Union shares subject to an equity election will be payable in cash at $44.25 per outstanding Southern Union share.

Consummation of the merger is subject to customary conditions, including, without limitation: (i) the adoption of the merger agreement by the Southern Union stockholders, (ii) the expiration or early termination of the waiting period applicable to the merger under the HSR Act and any required approvals thereunder, (iii) the receipt of required approvals from FERC, MPSC and, if necessary, MDPU, (iv) the effectiveness of a registration statement on Form S-4 relating to the ETE common units to be issued in the merger, and (v) the absence of any law, injunction, judgment or ruling prohibiting or restraining the merger or making the consummation of the merger illegal. Under the merger agreement, ETE is required to agree to divestitures and business restructuring, subject to certain limitations, to obtain antitrust and regulatory approvals.

ETE and ETP are parties to the Citrus Merger Agreement dated as of July 19, 2011, as amended. The Citrus Merger Agreement modifies certain terms of the Agreement and Plan of Merger entered into by ETP and ETE on July 4, 2011. Pursuant to the merger agreement, immediately prior to the effective time of the ETE and Southern Union merger, ETE will assign and Southern Union will assume the benefits and obligations of ETE under the Citrus Merger Agreement. Under the Citrus Merger Agreement it is anticipated that Southern Union will cause the Citrus Merger to occur. The Citrus Merger will be effected through the merger of Citrus ETP Acquisition with and into CrossCountry. In exchange for the interest in Citrus Corp., Southern Union will receive approximately $2.0 billion, consisting of $1.895 billion in cash and $105 million of ETP common units, with the value of the ETP common units based on the volume-weighted average trading price for the ten consecutive trading days ending immediately prior to the date that is three trading days prior to the closing date of the Citrus Merger. In order to increase the expected accretion to be derived from the Citrus Merger, ETE has agreed to relinquish its rights to

 

 

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approximately $220 million of the incentive distributions from ETP that ETE would otherwise be entitled to receive (as owner of ETP’s general partner) over 16 consecutive quarters following the closing of the Citrus Merger.

Consummation of the Citrus Merger is subject to customary conditions, including, without limitation: (i) satisfaction or waiver of the closing conditions set forth in the merger agreement, (ii) the receipt by ETP of any necessary waivers or amendments to its credit agreement, (iii) the amendment of ETP’s partnership agreement to reflect the agreed upon relinquishment by ETE of incentive distributions from ETP discussed above (which does not require any unitholder approval), and (iv) the absence of any order, decree, injunction or law prohibiting the consummation of the transactions contemplated by the Citrus Merger Agreement. The Citrus Merger Agreement contains certain termination rights for both ETE and ETP, including, among others, the right to terminate if the Citrus Merger is not completed by December 31, 2012 or if the merger agreement is terminated.

On October 15, 2011, ETP entered into an agreement to contribute its propane operations to AmeriGas in exchange for approximately $2.9 billion in cash and common units representing limited partner interests in AmeriGas.

The unaudited pro forma combined balance sheet gives effect to the merger, the Propane Transaction and the Citrus Merger as if such transactions had occurred on June 30, 2011; the unaudited pro forma combined statements of operations assume that such transactions were effected on January 1, 2010. The unaudited pro forma combined financial statements should be read in conjunction with (i) ETE’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on February 28, 2011, (ii) ETE’s quarterly report on Form 10-Q for the six months ended June 30, 2011, as filed with the SEC on August 8, 2011, (iii) Southern Union’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on February 25, 2011 and (iv) Southern Union’s quarterly report on Form 10-Q for the six months ended June 30, 2011, as filed with the SEC on August 9, 2011.

The unaudited pro forma combined financial statements are for illustrative purposes only and are not necessarily indicative of the financial position that would have been obtained or the financial results that would have occurred if the merger, the Propane Transaction and the Citrus Merger had been consummated on the dates indicated, nor are they necessarily indicative of the financial position or results of operations in the future. The pro forma adjustments, as described in the accompanying notes, are based upon available information and certain assumptions that are believed to be reasonable as of the date of this document. Management believes the accounting policies of ETE, its subsidiaries and Southern Union are substantially comparable.

The unaudited pro forma combined financial statements assume that the merger will be recorded as a business combination, with ETE being treated as the acquirer for accounting purposes and that the Citrus Merger will be treated as a transaction between entities under common control. The unaudited pro forma combined financial statements do not reflect anticipated synergies that may result from the operation of any of the combined entities that would exist subsequent to the consummation of the merger and the Citrus Merger.

 

 

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ENERGY TRANSFER EQUITY, L.P.

NOTES TO UNAUDITED PRO FORMA COMBINED INFORMATION

 

(a) To record the pro forma impacts of the transaction with AmeriGas, including (i) the deconsolidation of ETP’s propane operations, (ii) ETP’s acquisition of AmeriGas common units representing approximately 34% of the limited partner interests in AmeriGas, and (iii) ETP’s assumed use of cash proceeds from the transaction with AmeriGas to extinguish long-term debt. The unaudited pro forma combined balance sheet adjustments reflect the investment in AmeriGas at the equity consideration amount of $1.319 billion, as specified in the Contribution and Redemption Agreement between ETP and AmeriGas, which amount is presumed to be the fair value of the AmeriGas common units. The unaudited pro forma combined balance sheet adjustments also reflect a reduction of long-term debt of $1.14 billion, which represents the total of (i) the repayment of the outstanding balance of ETP’s revolving credit facility as of June 30, 2011 and (ii) the redemption of an assumed $994 million total principal amount of ETP’s senior notes.

The unaudited pro forma combined statements of operations include adjustments to reduce interest expense due to the assumed repayment of long-term debt described above. The unaudited pro forma combined statements of operations also include adjustments to equity in earnings of affiliates to reflect net impact of (i) ETP’s proportionate share of limited partners’ interest in net income attributable to AmeriGas and (ii) amortization of the pro forma excess fair value associated with ETP’s interest in AmeriGas.

The unaudited pro forma combined statements of operations also reflect adjustments for net income attributable to noncontrolling interest, which represents the amount of the pro forma net income adjustments that would be attributable to ETP’s public unitholders during the periods presented.

 

(b) To record the impacts of applying the purchase method of accounting to the merger, ETE’s management intends to engage a third party to undertake a detailed purchase price allocation and valuation study; however, such a study has not been completed. Therefore, these pro forma adjustments are based on management’s preliminary estimates.

The following is a preliminary estimate of the purchase price for Southern Union (in thousands, except per unit and per share data):

 

Southern Union shares outstanding as of June 30, 2011

     124,735   

Dilutive effect of Southern Union outstanding restricted stock, stock options and stock appreciation rights

     1,163   
  

 

 

 

Total Southern Union shares assumed to be subject to conversion

     125,898   

Assumed 60% cash option conversion

     60
  

 

 

 

Total Southern Union shares assumed to be converted to cash

     75,539   

Cash conversion amount per Southern Union share

   $ 44.25   
  

 

 

 

Assumed cash portion of purchase price (assumed to be funded through borrowings)

   $ 3,342,601   
  

 

 

 

Total Southern Union shares assumed to be subject to conversion

     125,898   

Assumed 40% equity conversion option

     40
  

 

 

 

Total Southern Union shares assumed to be converted to equity

     50,359   

Southern Union share conversion rate

     1.00   
  

 

 

 

Total ETE common units assumed to be issued

     50,359   

ETE common unit closing price as of October 24, 2011

     37.62   
  

 

 

 

Assumed fair value of equity portion of purchase price

   $ 1,894,506   
  

 

 

 

Total consideration assumed to be paid

   $ 5,237,107   

Southern Union long-term debt and notes payable assumed (based on June 30, 2011)

     4,014,989   
  

 

 

 

Total assumed purchase price

   $ 9,252,096   
  

 

 

 

 

 

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The following summarizes the assumed allocation of the purchase price among the assets acquired and liabilities assumed in the merger (in thousands):

 

Total current assets

   $  602,852   

Property, plant and equipment

     7,594,914   

Advances to and investments in affiliates

     2,026,199   

Goodwill

     1,558,404   

Intangibles and other assets, net

     171,959   
  

 

 

 

Total assets acquired

     11,954,328   
  

 

 

 

Total current liabilities

     1,609,835   

Long-term debt

     3,010,140   

Deferred income taxes

     1,894,044   

Other long-term liabilities

     203,202   
  

 

 

 

Total liabilities assumed

     6,717,221   
  

 

 

 

Total consideration

     5,237,107   

Cash received

     3,013   
  

 

 

 

Assumed total consideration, net of cash received

   $ 5,234,094   
  

 

 

 

 

(c) To record depreciation expense on the $1.9 billion of the excess purchase price allocated to property, plant and equipment based on an estimated weighted average remaining useful life of 25 years and to record the related income tax impact.

 

(d) To record interest expense at ETE’s assumed rate of 7.0% from incremental debt of $1.48 billion in connection with the merger. This adjustment also includes interest expense on ETP’s assumed borrowings of $1.895 billion to fund the Citrus Merger, at an assumed rate of 4.9%. The actual interest rates could vary from the rate assumed for purposes of this pro forma information; a variance in these rates of 1/8 percent would result in a change in interest expense of approximately $4.2 million annually based on the assumed principal amounts.

 

(e) To adjust amortization included in interest expense to (i) reverse historical amortization of financing costs and fair value adjustments related to debt and (ii) record pro forma amortization related to the pro forma adjustment of Southern Union’s debt to fair value.

 

(f) To record amortization of a portion of the purchase price allocated to the investment in Citrus Corp. in excess of the book value of the Citrus Corp. investment recorded on Southern Union’s historical financial statements over an estimated life of 40 years.

 

(g) To record the change in net income attributable to ETP’s public unitholders as a result of the Citrus Merger. This adjustment includes the impacts from (i) incremental income recorded by ETP from its equity method investment in Citrus Corp., (ii) the change in the relative ownership interests among the general partner and the limited partners as a result of ETP’s assumed issuance of ETP common units to ETE, and (iii) ETE’s relinquishment of rights to approximately $13.75 million of incentive distribution rights per quarter for each of the periods presented.

 

(h) To record change to the general partner’s interest in net income resulting from (i) changes in net income resulting from consolidation of Southern Union and the Citrus Merger and (ii) changes in the general partner’s ownership percentage as a result of the issuance of additional ETE common units.

 

 

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Unaudited Comparative Per Unit/Share Data

The following table sets forth for the periods presented (i) the historical earnings from continuing operations and book value per ETE common unit and historical ETE cash distributions, (ii) the historical earnings from continuing operations and book value per share of Southern Union common stock and historical Southern Union dividends, (iii) the unaudited pro forma earnings and book value per unit/share information after giving effect to the merger and (iv) the equivalent pro forma per unit/share attributable to 1.00 ETE common unit that will be received for each share of Southern Union common stock in the merger.

You should read this information in conjunction with (i) the selected consolidated historical financial data included elsewhere in this document, (ii) the historical consolidated financial statements of ETE and Southern Union and related notes thereto that are incorporated by reference into this document and (iii) “—Selected Unaudited Pro Forma Condensed Combined Financial Information” and related notes. The unaudited pro forma per unit/share information does not purport to represent what the actual results of operations of ETE and Southern Union would have been had the merger been completed in another period or to project ETE’s and Southern Union’s results of operations that may be achieved if the merger is completed.

 

     Six Months
Ended
June 30, 2011
    Year Ended
December 31,
2010
 

Historical—ETE

    

Earnings from Continuing Operations Per Unit:

    

Basic

   $ 0.69      $ 0.86   

Diluted

   $ 0.69      $ 0.86   

Cash distributions(1)

   $ 1.185      $ 2.16   

Book value per unit—Diluted(2)

   $ (0.11   $ 0.54   

Historical—Southern Union

    

Earnings from Continuing Operations Per Share:

    

Basic

   $ 0.97      $ 1.88   

Diluted

   $ 0.96      $ 1.87   

Cash dividends

   $ 0.30      $ 0.60   

Book value per share—Diluted

   $ 20.71      $ 20.16   

Pro Forma Combined(3)

    

Earnings Per Unit/Share:

    

Basic

   $ 0.44      $ 0.30   

Diluted

   $ 0.44      $ 0.30   

Book value per unit/share—Diluted

   $ 7.73      $ 8.26   

Equivalent Pro Forma Per Unit/Share(4)

    

Earnings Per Unit/Share:

    

Basic

   $ 0.44      $ 0.30   

Diluted

   $ 0.44      $ 0.30   

Book value per unit/share—Diluted

   $ 7.73      $ 8.26   

 

(1) With respect to ETE, represents cash distributions per common unit declared and paid with respect to the period to which they relate.
(2) Represents a period end amount.
(3) The pro forma information includes the effect of the merger on the basis described in “Summary—Selected Unaudited Pro Forma Condensed Combined Financial Statements.”
(4) Southern Union’s equivalent pro forma earnings and book value amounts have been calculated by multiplying ETE’s pro forma per unit amounts by the exchange ratio of 1.00 ETE common unit.

 

 

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Table of Contents

Comparative ETE and Southern Union Per Unit/Share Market Price Data

ETE common units are listed on the NYSE under the ticker symbol “ETE.” Southern Union common stock is listed on the NYSE under the ticker symbol “SUG.”

The following table presents closing prices for ETE common units and shares of Southern Union common stock on (i) June 15, 2011, the last trading day before the public announcement of the execution of the agreement and plan of merger by ETE and Southern Union, (ii) July 1, 2011, the last trading day before the public announcement of the execution of the amended and restated agreement and plan of merger by ETE and Southern Union, (iii) July 18, 2011, the last trading day before the public announcement of the execution of the second amended and restated agreement and plan of merger by ETE and Southern Union, and (iv) October 24, 2011, the last practicable trading day before the date of this document. This table also presents the equivalent market value per share of Southern Union common stock on June 15, 2011, July 1, 2011, July 18, 2011 and October 24, 2011, as determined by multiplying the closing prices of ETE common units on those dates by the exchange ratio of 1.00 ETE common unit.

Although the exchange ratio is fixed, the market prices of ETE common units and Southern Union common stock will fluctuate before the merger is completed and the market value of the merger consideration ultimately received by Southern Union stockholders who receive ETE common units as all or a portion of their merger consideration will depend on the closing price of ETE common units on the day the merger is consummated. Because the merger consideration is fixed and the market price of ETE common units will fluctuate, Southern Union stockholders who receive all or a portion of their merger consideration in ETE common units will not know the exact value of the merger consideration they will receive until the closing of the merger.

 

     Energy Transfer
Equity, L.P.
Common Units
     Southern Union
Company
Common Stock
     Equivalent Market
Value per Share of
Southern Union
Common Stock
 

June 15, 2011

   $ 42.47       $ 28.26       $ 42.47   

July 1, 2011

   $ 44.68       $ 40.37       $ 44.68   

July 18, 2011

   $ 44.03       $ 43.33       $ 44.03   

October 24, 2011

   $ 37.62       $ 41.94       $ 37.62   

 

 

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The tables below set forth, for the calendar quarters indicated, the high and low sale prices per unit of ETE common units and per share of Southern Union common stock on the NYSE. The tables also show the amount of cash distributions declared on ETE common units and Southern Union common stock for the calendar quarters indicated.

 

     Energy Transfer Equity, L.P.
Common Units
 
     High      Low      Cash
Distributions
Declared (1)
 

Fiscal Year Ending December 31, 2011

        

Fourth Quarter (through October 24, 2011)

   $ 37.64       $ 30.78         $N/A(2)  

Third Quarter

   $ 45.42       $ 33.21         $0.6250(3)  

Second Quarter

   $ 47.34       $ 38.77       $ 0.6250   

First Quarter

   $ 45.47       $ 37.27       $ 0.5600   

Fiscal Year Ended December 31, 2010

        

Fourth Quarter

   $ 40.46       $ 36.90       $ 0.5400   

Third Quarter

   $ 37.97       $ 32.61       $ 0.5400   

Second Quarter

   $ 35.51       $ 27.25       $ 0.5400   

First Quarter

   $ 34.80       $ 30.07       $ 0.5400   

Fiscal Year Ended December 31, 2009

        

Fourth Quarter

   $ 31.00       $ 26.88       $ 0.5400   

Third Quarter

   $ 30.46       $ 24.25       $ 0.5350   

Second Quarter

   $ 27.14       $ 20.66       $ 0.5350   

First Quarter

   $ 22.43       $ 15.90       $ 0.5250   

Fiscal Year Ended December 31, 2008

        

Fourth Quarter

   $ 22.35       $ 12.75       $ 0.5100   

Third Quarter

   $ 30.31       $ 19.00       $ 0.4800   

Second Quarter

   $ 35.02       $ 28.47       $ 0.4800   

First Quarter

   $ 35.26       $ 26.99       $ 0.4400   

Transition Period Ended December 31, 2007(4)

        

Four Months Ended December 31, 2007

   $ 37.35       $ 31.55       $ 0.5500   

Fiscal Year Ended August 31, 2007

        

Fourth Quarter

   $ 42.95       $ 29.82       $ 0.3900   

Third Quarter

   $ 44.06       $ 33.20       $ 0.3725   

Second Quarter

   $ 33.70       $ 28.80       $ 0.3560   

First Quarter

   $ 29.99       $ 26.04       $ 0.3400   

Fiscal Year Ended August 31, 2006

        

Fourth Quarter

   $ 27.16       $ 24.98       $ 0.3125   

Third Quarter

   $ 27.65       $ 21.41       $ 0.2375   

Period Ended February 28, 2006(5)

   $ 23.29       $ 21.50       $ 0.0578   

 

 

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Table of Contents
     Southern Union Company
Common Stock
 
     High      Low      Cash
Dividends
Declared
 

Fiscal Year Ending December 31, 2011

        

Fourth Quarter (through October 24, 2011)

   $ 41.99       $ 38.43         N/A (2) 

Third Quarter

   $ 44.65       $ 38.41       $ 0.1500   

Second Quarter

   $ 41.68       $ 27.18       $ 0.1500   

First Quarter

   $ 29.24       $ 24.18       $ 0.1500   

Fiscal Year Ended December 31, 2010

        

Fourth Quarter

   $ 25.96       $ 23.60       $ 0.1500   

Third Quarter

   $ 24.83       $ 21.12       $ 0.1500   

Second Quarter

   $ 26.68       $ 20.00       $ 0.1500   

First Quarter

   $ 26.03       $ 21.64       $ 0.1500   

Fiscal Year Ended December 31, 2009

        

Fourth Quarter

   $ 23.17       $ 19.24       $ 0.1500   

Third Quarter

   $ 21.46       $ 16.72       $ 0.1500   

Second Quarter

   $ 18.83       $ 14.69       $ 0.1500   

First Quarter

   $ 16.22       $ 11.59       $ 0.1500   

Fiscal Year Ended December 31, 2008

        

Fourth Quarter

   $ 20.69       $ 10.60       $ 0.1500   

Third Quarter

   $ 27.24       $ 19.70       $ 0.1500   

Second Quarter

   $ 27.73       $ 23.26       $ 0.1500   

First Quarter

   $ 29.77       $ 21.56       $ 0.1500   

Fiscal Year Ended December 31, 2007

        

Fourth Quarter

   $ 33.01       $ 28.46       $ 0.1500   

Third Quarter

   $ 35.05       $ 27.20       $ 0.1000   

Second Quarter

   $ 35.50       $ 30.35       $ 0.1000   

First Quarter

   $ 30.50       $ 26.81       $ 0.1000   

Fiscal Year Ended December 31, 2006

        

Fourth Quarter

   $ 29.76       $ 26.19       $ 0.1000   

Third Quarter

   $ 27.75       $ 25.83       $ 0.1000   

Second Quarter

   $ 27.22       $ 22.76       $ 0.1000   

First Quarter

   $ 25.55       $ 22.90       $ 0.1000   

 

(1) Distributions are shown in the quarter with respect to which they relate. For each of the indicated quarters for which distributions have been made, an identical per unit cash distribution was paid on any units subordinated to ETE’s common units outstanding at such time. Excludes the Series A Units of ETE issued in connection with ETE’s acquisition of the general partner interests in Regency.
(2) Cash distributions and dividends in respect of the fourth quarter of 2011 have not been declared or paid.
(3) Cash distributions in respect of the third quarter of 2011 have not been paid.
(4) ETE changed its fiscal year to the calendar year in 2007. In connection with this change, ETE has transitioned to making quarterly cash distributions on a calendar quarter basis that are paid within 50 days following the end of each calendar quarter. To facilitate this transition, ETE did not make a cash distribution for the three-month period ended November 30, 2007, but instead made a cash distribution for the four-month period ended December 31, 2007 that was paid on February 19, 2008.
(5) High and low for the period ended February 28, 2006 represents the period from February 3, 2006 (the IPO date) to February 28, 2006.

The information in the preceding tables is historical only. ETE and Southern Union urge Southern Union stockholders to obtain current market quotations for ETE common units and Southern Union common stock.

 

 

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RISK FACTORS

In addition to the other information included and incorporated by reference into this document, including the matters addressed in the section titled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for the approval of the merger agreement and the merger before making your election. In addition, you should read and consider the risks associated with each of the businesses of ETE and Southern Union. These risks can be found in ETE’s and Southern Union’s respective Annual Reports on Form 10-K for the year ended December 31, 2010, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and incorporated by reference into this document. For further information regarding the documents incorporated into this document by reference, please see the section titled “Where You Can Find More Information.”

Risks Related to the Merger

Because the market price of ETE common units will fluctuate, Southern Union stockholders receiving ETE common units cannot be sure of the market value of ETE common units that they will receive in the merger.

At the time the merger is completed, each share of Southern Union common stock will be converted into the right to receive, at the election of the Southern Union stockholder, either (1) $44.25 in cash, without interest, or (2) 1.00 ETE common unit (and cash in lieu of fractional ETE common units), subject to a proration feature. Although the exchange ratio used to determine the ETE common units in the merger is fixed, the value of the consideration to be received in the form of ETE common units will change up until the closing date. If the trading value of ETE common units is less than $44.25, then the value of the equity portion of the merger consideration to be paid per share of Southern Union common stock will be less than the cash equivalent had a cash election been made by the Southern Union stockholder. Conversely, if the trading value of ETE common units is greater than $44.25, then the value of the equity portion of the merger consideration to be paid per share of Southern Union common stock will be greater than the cash equivalent had a cash election been made by the Southern Union stockholder. There will be a time lapse between the date on which Southern Union stockholders make an election with respect to the form of merger consideration to be received by them in exchange for their Southern Union common stock and the date on which the Southern Union stockholders entitled to receive ETE common units actually receive such units. The market value of ETE common units will fluctuate during this period, as well as prior to the date on which an election is made. These fluctuations may be caused by changes in the businesses, operations, results and prospects of both ETE and Southern Union, market expectations of the likelihood that the merger will be completed and the timing of the completion, general market and economic conditions or other factors. At the time Southern Union stockholders make their election in respect of the merger consideration to be paid to them (and at the time they cast their votes regarding approval of the merger agreement and the merger), Southern Union stockholders will not know the actual market value of the ETE common units they will receive when the merger is finally completed. The actual market value of the ETE common units, when received by Southern Union stockholders, will depend on the market value of those units on that date. This market value may be less than the value used to determine the number of units to be received, as the determination will be made with respect to a period occurring prior to the consummation of the merger. Southern Union stockholders are urged to obtain current market quotations for ETE common units when they make their election.

The failure to successfully combine the businesses of ETE and Southern Union in the expected time frame may adversely affect ETE’s future results, which may adversely affect the value of the ETE common units that Southern Union stockholders would receive in the merger.

The success of the merger will depend, in part, on the ability of ETE to realize the anticipated benefits from combining the businesses of ETE and Southern Union. To realize these anticipated benefits, ETE’s and Southern Union’s businesses must be successfully combined. If the combined company is not able to achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the merger.

 

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ETE and Southern Union, including their respective subsidiaries, have operated and, until the completion of the merger, will continue to operate independently. It is possible that the integration process could result in the loss of key employees, as well as the disruption of each company’s ongoing businesses or inconsistencies in their standards, controls, procedures and policies. Any or all of those occurrences could adversely affect ETE’s ability to maintain relationships with customers and employees after the merger or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of ETE and Southern Union.

Southern Union stockholders may receive a form or combination of consideration different from what they elect.

While each Southern Union stockholder may elect to receive all cash, all ETE common units or a combination of both pursuant to the merger, the pools of cash and ETE common units available for all Southern Union stockholders will be capped at 60% and 50%, respectively, of the aggregate merger consideration. Accordingly, depending on the elections made by other Southern Union stockholders, if a Southern Union stockholder elects to receive all cash pursuant to the merger, such stockholder may receive a portion of the consideration in ETE common units; and if a Southern Union stockholder elects to receive all ETE common units pursuant to the merger, such stockholder may receive a portion of the consideration in cash. If a Southern Union stockholder elects to receive a combination of cash and ETE common units pursuant to the merger, such stockholder may receive a different proportion of consideration than such stockholder had elected. If a Southern Union stockholder does not submit a properly completed and signed election form to the exchange agent by the election deadline, then such stockholder will be deemed to have elected to receive all ETE common units.

If you tender shares of Southern Union common stock to make an election, you will not be able to sell those shares unless you revoke your election prior to the election deadline.

If you are a Southern Union stockholder and want to make a cash or equity election, you must deliver your stock certificates (or follow the procedures for guaranteed delivery) and a properly completed and signed election form to the exchange agent. The deadline for doing this is 5:00 p.m., New York time, on the twentieth business day following the date on which the election form is mailed (or such other later date as ETE and Southern Union shall agree). ETE and Southern Union will publicly announce the election deadline at least five business days prior to such deadline. You will not be able to sell any shares of Southern Union common stock that you have delivered unless you revoke your election before the deadline by providing written notice to the exchange agent. If you do not revoke your election, you will not be able to liquidate your investment in Southern Union common stock for any reason until you receive cash or ETE common units pursuant to the merger. In the time between delivery of your shares and the closing of the merger, the market price of Southern Union common stock or ETE common units may decrease, and you might otherwise want to sell your shares of Southern Union to gain access to cash, make other investments, or reduce the potential for a decrease in the value of your investment.

If the merger is approved, the date that Southern Union stockholders will receive the merger consideration is uncertain.

If the merger is approved, the date that Southern Union stockholders will receive the merger consideration depends on the completion date of the merger, which is uncertain. While we expect to complete the merger in the first quarter of 2012, the completion date of the merger might be later than expected due to delays in obtaining required regulatory approvals or other unforeseen events.

The pendency of the merger could materially adversely affect the future business and operations of ETE or Southern Union or result in a loss of Southern Union employees.

In connection with the pending merger, it is possible that some customers, suppliers and other persons with whom ETE, ETE’s subsidiaries or Southern Union have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with Southern

 

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Union as a result of the merger, which could negatively impact revenues, earnings and cash flows of ETE or Southern Union, as well as the market prices of ETE common units or shares of Southern Union common stock, regardless of whether the merger is completed. Similarly, current and prospective employees of Southern Union may experience uncertainty about their future roles with ETE and Southern Union following completion of the merger, which may materially adversely affect the ability of ETE and Southern Union to attract and retain key employees.

Failure to complete the merger could negatively impact the unit price and stock price of ETE and Southern Union, respectively, and their respective future businesses and financial results.

If the merger is not completed, the ongoing businesses of ETE and Southern Union may be adversely affected and ETE and Southern Union will be subject to several risks and consequences, including the following:

 

   

under the merger agreement, Southern Union may be required, under certain circumstances, to pay ETE a breakup fee of $181.3 million and up to $54.0 million of ETE’s expenses;

 

   

ETE and Southern Union will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, financial advisor and printing fees;

 

   

ETE and Southern Union would not realize the expected benefits of the merger;

 

   

under the merger agreement, each of ETE and Southern Union is subject to certain restrictions on the conduct of its business prior to completing the merger which may adversely affect its ability to execute certain of its business strategies; and

 

   

matters relating to the merger may require substantial commitments of time and resources by ETE and Southern Union management, which could otherwise have been devoted to other opportunities that may have been beneficial to ETE and Southern Union as independent companies.

In addition, if the merger is not completed, ETE and/or Southern Union may experience negative reactions from the financial markets and from their respective customers and employees. ETE and/or Southern Union also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against ETE or Southern Union to attempt to force them to perform their respective obligations under the merger agreement.

The merger agreement includes restrictions on the ability of Southern Union to declare or pay dividends to its stockholders, even if it would otherwise have available surplus or net profits to declare and pay such a dividend.

The terms of the merger agreement permit Southern Union to pay dividends on its capital stock only as is consistent with past practices, unless Southern Union obtains the prior written consent of ETE. While ETE and Southern Union have agreed to use their reasonable best efforts to close the merger in an expeditious manner, factors could cause the delay of the closing, which include obtaining Southern Union stockholder approval. Therefore, even if Southern Union has available surplus or net profits to pay dividends to its common stockholders, and satisfies any other conditions to pay such a dividend, the terms of the merger agreement could prohibit such action.

Certain executive officers and directors of Southern Union have interests in the merger that are different from, or in addition to, the interests of Southern Union stockholders generally, which could have influenced their decision to support or approve the merger.

Certain executive officers and directors of Southern Union are parties to agreements or participants in other arrangements that give them interests in the merger that may be different from, or be in addition to, your interests as a stockholder of Southern Union. You should consider these interests in voting on the merger. We have described these different interests under “Proposal 1 – The Merger—Interests of Southern Union’s Executive Officers and Directors in the Merger.”

 

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The merger agreement limits Southern Union’s ability to pursue alternatives to the merger.

The merger agreement contains provisions that make it more difficult for Southern Union to sell its business to a party other than ETE. These provisions include the general prohibition on Southern Union soliciting any acquisition proposal (as defined in the section titled “The Merger Agreement—Non-Solicitation by Southern Union”) or offer for a competing transaction and the requirement that Southern Union pay ETE a breakup fee of $181.3 million and up to $54.0 million of ETE’s expenses if the merger agreement is terminated in specified circumstances, including in the event Southern Union terminates the merger agreement in response to an acquisition proposal it determines constitutes a superior offer. In addition, even if the Southern Union Board receives a superior offer, it must provide ETE with the opportunity to amend its offer. See “The Merger Agreement—Termination of the Merger Agreement” and “The Merger Agreement—Expense Reimbursement; Breakup Fee.”

The foregoing may discourage a third party that might have an interest in acquiring all or a significant part of Southern Union from considering or proposing an acquisition, even if that party were prepared to pay consideration with a higher per share value than the current proposed merger consideration. Furthermore, the breakup fee and the expense reimbursement provisions may result in a potential competing acquiror proposing to pay a lower per share price to acquire Southern Union than it might otherwise have proposed to pay.

The completion of the merger will require ETE to enter into a new financing arrangement. If ETE’s financing for the merger becomes unavailable, the merger may not be completed.

ETE intends to finance a portion of the cash component of the merger consideration with debt financing. On October 17, 2011, ETE entered into the Credit Agreement, which provides ETE with unsecured financing in the aggregate principal amount of $3.7 billion. ETE’s ability to borrow under the Credit Agreement is subject to the satisfaction of certain conditions precedent, including the delivery of certain documents requested by the administrative agent (such as financial statements, favorable opinions of counsel and customary corporate authorization documents) and the payment of relevant fees and expenses.

In the event that the financing contemplated by the Credit Agreement is not available to ETE, whether due to ETE’s inability to satisfy conditions precedent to borrowing or otherwise, other financing may not be available to ETE on acceptable terms, in a timely manner, or at all. If other financing becomes necessary and ETE is unable to secure such additional financing, the merger may not be completed. ETE does not have a right to terminate the merger agreement in the event it does not have adequate funds to complete the transaction at closing. In the merger agreement, ETE represented to Southern Union that it would have available, at the closing of the merger, all funds required to consummate the transactions contemplated by the merger agreement. Southern Union would have a right to terminate the merger agreement if ETE breached this representation in a manner such that ETE would not be able to satisfy this representation on or before the end date. See “Merger Agreement—Termination of the Merger Agreement” beginning on page 121.

The unaudited pro forma financial statements included in this document are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger.

The unaudited pro forma financial statements contained in this document are presented for illustrative purposes only, are based on various adjustments, assumptions and preliminary estimates, and may not be an indication of the combined company’s financial condition or results of operations following the merger for several reasons. See “Summary—Selected Unaudited Pro Forma Condensed Combined Financial Information.” The actual financial condition and results of operations of the combined company following the merger may not be consistent with, or evident from, these pro forma financial statements. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the

 

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combined company’s financial condition or results of operations following the merger. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the price of ETE common units after completion of the merger.

A different set of factors and conditions affect ETE common units and could have a negative impact on the unit price.

Upon completion of the merger, Southern Union stockholders will become holders of ETE common units. The businesses of ETE and the other companies it has acquired and may acquire in the future are different in many respects from those of Southern Union. There is a risk that various factors, conditions and developments which would not affect the price of Southern Union’s common stock could negatively affect the price of ETE common units. Please see the section titled “Cautionary Statement Regarding Forward-Looking Statements” for a summary of some of the key factors that might affect ETE and the prices at which ETE common units may trade from time to time. Southern Union stockholders are also urged to read carefully the risk factors included in ETE’s Annual Report on Form 10-K for the year ended December 31, 2010 and any subsequent Quarterly Reports on Form 10-Q, which are or will be incorporated by reference into this document.

The ETE common units to be received by Southern Union stockholders as a result of the merger will have different rights from Southern Union common stock.

Following completion of the merger, Southern Union stockholders who receive all or a portion of their merger consideration in ETE common units will no longer hold shares of Southern Union common stock, but will instead be unitholders of ETE. There are important differences between the rights of Southern Union stockholders and the rights of ETE unitholders. See “Comparison of Rights of ETE Unitholders and Southern Union Stockholders” for a discussion of the different rights associated with the ETE common units and Southern Union common stock.

Pending litigation against ETE and Southern Union could result in an injunction preventing completion of the merger, the payment of damages in the event the merger is completed and/or may adversely affect the combined company’s business, financial condition or results of operations following the merger.

In connection with the merger, purported stockholders of Southern Union have filed several stockholder class action lawsuits against ETE, Southern Union, Merger Sub and the Southern Union Board in the District Courts of Harris County, Texas and in the Delaware Courts of Chancery. Among other remedies, the plaintiffs seek to enjoin the merger. If a final settlement is not reached, or if a dismissal is not obtained, these lawsuits could prevent or delay completion of the merger and result in substantial costs to ETE and Southern Union, including any costs associated with the indemnification of directors. Additional lawsuits may be filed against ETE and/or Southern Union related to the merger. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is completed may adversely affect the combined company’s business, financial condition or results of operations. See the section titled “Proposal 1 – The Merger—Litigation Relating to the Merger.”

The fairness opinions obtained from the financial advisors to the Southern Union Special Committee will not reflect subsequent changes.

In connection with the proposed merger, the Southern Union Special Committee received written opinions from Evercore, dated as of July 19, 2011, and Goldman Sachs, dated as of July 19, 2011.

The Evercore opinion stated that, as of such date, and based upon and subject to the assumptions, qualifications, limitations and other matters set forth in the opinion, the merger consideration to be paid to the holders of Southern Union’s common stock in connection with the merger is fair from a financial point of view to such holders. The Goldman Sachs opinion stated that, as of such date, and based upon and subject to the factors and assumptions set forth in the opinion, the aggregate consideration to be paid to the holders of Southern

 

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Union common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The opinions do not reflect changes that may occur or may have occurred after the date of the opinions, including changes to the operations and prospects of ETE or Southern Union, changes in general market and economic conditions or regulatory or other factors. Any such changes, or other factors on which the opinions are based, may materially alter or affect the relative values of ETE or Southern Union.

If the merger agreement is terminated, Southern Union may be obligated to reimburse ETE for costs incurred related to the merger and, under certain circumstances, pay a breakup fee to ETE. These costs could require Southern Union to seek loans or use Southern Union’s available cash that would have otherwise been available for operations or dividends.

In certain circumstances, upon termination of the merger agreement, Southern Union would be responsible for reimbursing ETE for up to $54.0 million in expenses related to the transaction and may be obligated to pay a breakup fee to ETE of $181.3 million. For a detailed discussion of the various circumstances leading to a reimbursement of expenses and payment of a breakup fee, please read the section titled “The Merger Agreement—Expense Reimbursement; Breakup Fee.”

If the merger agreement is terminated, the expense reimbursement and the breakup fee required to be paid by Southern Union under the merger agreement may require Southern Union to seek loans or borrow amounts to enable it to pay these amounts to ETE. In either case, payment of these amounts would reduce the cash Southern Union has available for operations or to pay dividends.

Tax Risks Related to the Merger

Your exchange of Southern Union common stock for cash in the merger is expected to be a taxable transaction.

If you exchange Southern Union common stock for cash in the merger, you will recognize gain or loss in an amount equal to the difference between the amount of cash received, and your adjusted tax basis in your Southern Union common stock so exchanged. For a more detailed discussion, see “Material U.S. Federal Income Tax Consequences.”

Your exchange of Southern Union common stock for ETE common units may be taxable in certain circumstances.

It is generally expected that you will not recognize gain or loss for U.S. federal income tax purposes if you exchange your Southern Union common stock solely for ETE common units in the merger. You may recognize gain, however, upon such exchange or upon the occurrence of subsequent events or certain later transactions undertaken by ETE. In addition, if ETE were to be treated as an “investment company” under applicable provisions of the Internal Revenue Code immediately following the merger, then your exchange of Southern Union common stock for ETE common units in the merger would be treated for U.S. federal income tax purposes as a taxable sale of your Southern Union common stock for cash in an amount equal to the value of the ETE common units you receive. As a condition to closing, ETE will receive an opinion from its special tax counsel, Bingham McCutchen LLP, that ETE should not be treated as an investment company under such applicable provisions of the Internal Revenue Code, and Southern Union will receive an opinion from Roberts & Holland LLP that the merger should qualify as a contribution of property to ETE in exchange for interests in ETE under Section 721(a) of the Internal Revenue Code. It is also a condition to closing that ETE receive from Latham & Watkins LLP, counsel to ETE, an opinion to the effect that for U.S. federal income tax purposes, 90% of the current gross income of ETE constitutes “qualifying income” within the meaning of Section 7704(d) of the Internal Revenue Code and that ETE will be treated as a partnership for U.S. federal income tax purposes pursuant to Section 7704(c) of the Internal Revenue Code. However, the Internal Revenue Service (“IRS”) will not be bound by these opinions and may disagree with their conclusions. For example, the opinion of Bingham McCutchen LLP will be based in part on representations made by ETE, Southern Union and Merger Sub

 

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regarding the relative value of the assets held by ETE and Southern Union immediately following the merger. It is possible that the IRS could challenge these valuations and assert that ETE is an investment company notwithstanding ETE’s receipt of such an opinion. Furthermore, the opinion of Roberts & Holland LLP will assume the correctness of the conclusions reached in the opinions of Bingham McCutchen LLP and Latham & Watkins LLP. For a more detailed discussion, please see “Material U.S. Federal Income Tax Consequences.”

Tax Risks Related to Ownership and Disposition of ETE Common Units

ETE may engage in transactions that cause you to be subject to taxation in a manner different from that applicable to other holders of ETE common units.

Even if you recognize no gain in the merger, you could be required to recognize part or all of the “built-in gain” on your Southern Union common stock if ETE (a) sells or otherwise disposes of, or is considered to sell or otherwise to dispose of, Southern Union common stock in a taxable transaction at any time, (b) distributes any Southern Union common stock to another unitholder within seven years of the merger, (c) distributes any ETE property other than money or Southern Union common stock to a former Southern Union stockholder who became a unitholder as a result of the merger within seven years of the merger, or (d) makes any distribution (other than a distribution of an “operating cash flow distribution”) to a former Southern Union stockholder within two years of the merger. For a more detailed discussion, please see “Material U.S. Federal Income Tax Consequences.”

Southern Union will be a corporate subsidiary of ETE after the merger and will remain subject to corporate-level income taxes.

After the merger, ETE will own and operate certain aspects of Southern Union’s business through Southern Union as a wholly owned corporate subsidiary of ETE. Accordingly, Southern Union will continue to be subject to corporate-level tax, which may reduce the cash available for distribution to ETE and, in turn, to ETE unitholders. If the IRS were to successfully assert that Southern Union has more tax liability than ETE anticipated or legislation were enacted that increased the corporate tax rate, the cash available for distribution by ETE could be further reduced.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document includes “forward-looking statements” about ETE and Southern Union that are subject to risks and uncertainties. All statements other than statements of historical fact included in this document are forward-looking statements. Statements using words such as “anticipate,” “believe,” “intend,” “project,” “plan,” “expect,” “continue,” “estimate,” “goal,” “forecast,” “may,” “will,” or similar expressions help identify forward-looking statements.

Except for their respective obligations to disclose material information under U.S. federal securities laws, neither ETE nor Southern Union undertakes any obligation to release publicly any revisions to any forward-looking statements, to report events or circumstances after the date of this document, or to report the occurrence of unanticipated events.

Forward-looking statements involve a number of risks and uncertainties, and actual results or events may differ materially from those projected or implied in those statements. Important factors that could cause such differences include, but are not limited to:

 

   

the matters described in the section titled “Risk Factors;”

 

   

cyclical or other downturns in demand;

 

   

adverse changes in economic or industry conditions;

 

   

changes in the securities and capital markets;

 

   

changes affecting customers or suppliers;

 

   

changes in laws or regulations, third-party relations and approvals, and decisions of courts, regulators and/or governmental bodies;

 

   

effects of competition;

 

   

developments in and losses resulting from claims and litigation;

 

   

changes in operating conditions and costs;

 

   

the extent of ETE’s or Southern Union’s ability to achieve their respective operational and financial goals and initiatives; and

 

   

ETE’s continued taxation as a partnership and not as a corporation.

In addition, the acquisition of Southern Union by ETE is subject to the satisfaction of the conditions to the completion of the merger and the absence of events that could give rise to the termination of the merger agreement, the possibility that the merger does not close, risks that the proposed acquisition disrupts current plans and operations and business relationships or poses difficulties in attracting or retaining employees, the possibility that the costs or difficulties related to the integration of the two companies will be greater than expected and the possibility that the anticipated benefits from the merger cannot or will not be fully realized.

All written and oral forward-looking statements attributable to ETE or Southern Union or persons acting on behalf of ETE or Southern Union are expressly qualified in their entirety by such factors. For additional information with respect to these factors, please see the section entitled “Where You Can Find More Information.”

 

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INFORMATION ABOUT THE COMPANIES

Energy Transfer Equity, L.P.

ETE is a publicly traded Delaware limited partnership, whose common units are traded on the NYSE under the ticker symbol “ETE.” ETE’s only cash generating assets are its direct and indirect investments in limited partner and general partner interests in ETP and Regency, both of which are publicly traded master limited partnerships engaged in diversified energy-related services. The principal executive offices of ETE are located at 3738 Oak Lawn Avenue, Dallas, Texas 75219, and its telephone number is (214) 981-0700.

At October 24, 2011, ETE’s equity interests in ETP and Regency consisted of:

 

     General Partner
Interest

(as a % of total
partnership
interest)
    Incentive
Distribution
Rights
    Common
Units
 

ETP

     1.6     100     50,226,967 (1) 

Regency

     1.8     100     26,266,791 (2) 

 

  (1) Represents an approximate 23% limited partnership interest in ETP.
  (2) Represents an approximate 17% limited partnership interest in Regency.

The following is a brief description of ETP’s and Regency’s operations:

 

   

ETP is a publicly traded, investment grade partnership owning and operating a diversified portfolio of energy assets. ETP has pipeline operations in Arkansas, Arizona, Colorado, Louisiana, Mississippi, New Mexico, Utah and West Virginia and owns the largest intrastate pipeline system in Texas. ETP currently has natural gas operations that include more than 17,500 miles of gathering and transportation pipelines, treating and processing assets, and three storage facilities located in Texas. ETP is also one of the three largest retail marketers of propane in the United States, serving more than one million customers across the country. On October 15, 2011, ETP entered into an agreement to contribute its propane operations to AmeriGas in exchange for approximately $2.9 billion in cash and common units representing limited partner interests in AmeriGas. The transaction is expected to close late in 2011 or early in 2012. ETP owns a 70% interest in Lone Star, a joint venture between ETP and Regency, which owns and operates NGL storage, fractionation, and transportation assets in Texas, Louisiana and Mississippi. Lone Star’s assets include a 1,066-mile NGL pipeline and 43 million barrels of storage capacity at its Mont Belvieu, Texas facility.

 

   

Regency is a publicly traded Delaware limited partnership formed in 2005 engaged in the gathering, treating, processing, compressing and transportation of natural gas and NGLs. Regency focuses on providing midstream services in some of the most prolific natural gas production regions in the United States, including the Haynesville, Eagle Ford, Barnett, Fayetteville and Marcellus shales, as well as the Permian Delaware basin. Its assets are primarily located in Louisiana, Texas, Arkansas, Pennsylvania, Mississippi, Alabama and the mid-continent region of the United States, which includes Kansas, Colorado and Oklahoma. Regency owns a 30% interest in Lone Star.

This document incorporates important business and financial information about ETE from other documents that are not included in or delivered with this document. For a list of the documents that are incorporated by reference, please see the section titled “Where You Can Find More Information.”

Sigma Acquisition Corporation

Sigma Acquisition Corporation, or Merger Sub, is a Delaware corporation and a direct wholly owned subsidiary of ETE. Merger Sub has not carried on any activities to date, other than activities incidental to its formation or undertaken in connection with the transactions contemplated by the merger agreement. The

 

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principal executive offices of Merger Sub are located at 3738 Oak Lawn Avenue, Dallas, Texas 75219, and its telephone number is (214) 981-0700.

Southern Union Company

Southern Union Company, a Delaware corporation formed in 1932, owns and operates assets in the regulated and unregulated natural gas industry and is primarily engaged in the gathering, processing, transportation, storage and distribution of natural gas in the United States.

Through its wholly owned subsidiary, Panhandle, and its subsidiaries, Southern Union owns and operates approximately 10,000 miles of interstate pipelines that transport up to 5.5 Bcf/d of natural gas from the Gulf of Mexico, South Texas and the Panhandle regions of Texas and Oklahoma to major U.S. markets in the Midwest and Great Lakes regions of the United States. Panhandle also owns and operates a liquefied natural gas import terminal located on Louisiana’s Gulf Coast.

Through Citrus Corp., Southern Union owns a 50% interest in and operates Florida Gas. Florida Gas owns an open-access interstate pipeline system with a mainline capacity of approximately 3.0 Bcf/d and approximately 5,500 miles of pipelines extending from South Texas through the Gulf Coast region of the United States to South Florida.

Through SUGS, Southern Union owns approximately 5,500 miles of natural gas and NGL pipelines, five cryogenic plants with a combined capacity of 475 MMcf/d and five natural gas treating plants with combined capacities of 585 MMcf/d. SUGS is primarily engaged in connecting wells of natural gas producers to its gathering system, treating natural gas to remove impurities to meet pipeline quality specifications, processing natural gas for the removal of NGLs, and redelivering natural gas and NGLs to a variety of markets. Its operations are located in West Texas and Southeast New Mexico.

Through Southern Union’s regulated utility operations, Missouri Gas Energy and New England Gas Company, Southern Union serves natural gas end-user customers in Missouri and Massachusetts, respectively.

Shares of Southern Union’s common stock trade on the NYSE under the symbol “SUG.” Southern Union’s principal executive offices are located at 5051 Westheimer Road, Houston, Texas 77056, and its telephone number is (713) 989-2000.

This document incorporates important business and financial information about Southern Union from other documents that are not included in or delivered with this document. For a list of the documents that are incorporated by reference, see the section titled “Where You Can Find More Information.”

Transactions between ETE and Southern Union Affiliates

Affiliates and/or predecessors of each of ETE and Southern Union have from time to time entered into, and currently are parties to, natural gas liquid (“NGL”) purchase and sale agreements and transportation and storage agreements in the ordinary course of business. Recently, gathering and processing businesses located in the Permian Basin, including Southern Union’s gathering and processing business, have experienced constraints on NGL takeaway capacity. To address these constraints, SUG Energy, LLC (“SUGE”), a subsidiary of Southern Union, and Lone Star NGL LLC (“LS”), a subsidiary of ETE, entered into a letter agreement (“NGL Agreement”) dated June 20, 2011, as amended on July 14, 2011, for the purchase and sale of NGL products processed from various plants owned and operated by an affiliate of SUGE (and to eventually include NGLs processed from such affiliate’s proposed Red Bluff Plant), to LS’s NGL pipeline that extends from the West Texas Permian Basin area to Mont Belvieu, Texas. SUGE and LS are in the process of negotiating a more detailed definitive agreement intended to supersede the NGL Agreement. LS’s NGL pipeline capacity is scheduled to be expanded by (i) a debottlenecking project of the existing NGL pipeline, and (ii) construction of a

 

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new NGL pipeline. Generally, an aggregate of up to 5,000 barrels per day (“BPD”) is committed to the LS NGL pipeline from SUGE’s Halley, Keystone and proposed Red Bluff Plants during an interim term that extends through completion of the expansion projects, and thereafter, an aggregate of up to 20,000 BPD is committed from various of SUGE’s or certain of its affiliates’ West Texas plants for a 15-year primary term. Further, in the event that SUGE exceeds the referenced 20,000 BPD commitment, SUGE’s volume commitment will be increased (under certain circumstances) up to an additional 20,000 BPD, for an aggregate of up to 40,000 BPD, to accommodate existing and future growth in production. LS’s obligation to accept the additional 20,000 BPD (to the extent generated by the roll off of third party commitments) is subject to a number of conditions and, in the event that the Southern Union merger is not consummated by the end of the first calendar quarter of 2012, such obligation of LS will be converted to an option of LS as to such incremental volumes only.

 

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SPECIAL MEETING OF SOUTHERN UNION STOCKHOLDERS

This section contains information about the special meeting of Southern Union stockholders that has been called to, among other things, adopt the merger agreement and the transactions contemplated thereby, including the merger, and to approve, on an advisory (non-binding) basis, the compensation to be received by Southern Union’s named executive officers in connection with the merger. This document is being furnished to Southern Union stockholders in connection with the solicitation of proxies by the Southern Union Board to be used at the special meeting. Southern Union is first mailing this document and enclosed proxy card on or about October 27, 2011.

Date, Time and Place of the Special Meeting

A special meeting of Southern Union stockholders will be held at the Metropolitan Club, One East 60th Street, New York, New York 10022 on December 9, 2011, starting at 11:00 a.m., local time (unless it is adjourned or postponed to a later date).

Admission to the Special Meeting

All Southern Union stockholders are invited to attend the special meeting. Persons who are not Southern Union stockholders may attend only if invited by Southern Union. If you own shares in “street” or “nominee” name, you must bring proof of ownership (e.g., a current broker’s statement) in order to be admitted to the special meeting.

Purpose of the Special Meeting

 

  1. To consider and vote upon a proposal to adopt the merger agreement and the transactions contemplated thereby, including the merger;

 

  2. To consider and cast an advisory (non-binding) vote on the compensation to be received by Southern Union’s named executive officers in connection with the merger;

 

  3. To consider and vote upon any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement; and

 

  4. To transact such other business as may properly come before the special meeting and any adjournment or postponement thereof (at the present time, Southern Union knows of no other matters that will be presented for consideration at the special meeting).

Recommendation of the Southern Union Board

The Southern Union Board, acting upon the unanimous recommendation of the members of the Southern Union Special Committee, which committee is comprised solely of independent directors, has approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger, and has determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair and in the best interest of, Southern Union and Southern Union’s stockholders. In addition, the Southern Union Board recommends that the Southern Union stockholders vote to approve, on an advisory (non-binding) basis, the compensation to be received by Southern Union’s named executive officers in connection with the merger and to approve any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement.

Southern Union stockholders should carefully read this document in its entirety for more detailed information concerning the merger agreement and the transactions contemplated thereby, including the merger. In particular, Southern Union stockholders are directed to the merger agreement, which is attached hereto as Annex A.

 

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Record Date; Stockholders Entitled to Vote; Outstanding Shares Held

The Southern Union Board has designated the close of business on October 11, 2011 as the “record date” that will determine the stockholders who are entitled to receive notice of, and to vote at, the special meeting or at any adjournment or postponement of the special meeting. Only holders of record at the close of business on the record date are entitled to vote at the special meeting. At the close of business on the record date, there were 124,745,576 shares of common stock outstanding, held by approximately 5,422 holders of record. Each holder of Southern Union shares is entitled to one vote per share of common stock held.

Quorum

A quorum requires the presence, in person or by proxy, of holders of a majority of the outstanding Southern Union shares entitled to vote. Southern Union shares will be counted as present at the special meeting if the holder is present at the meeting or has submitted a properly executed proxy card. Proxies received but marked as abstentions will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum. If an executed proxy is returned by a broker or other nominee holding Southern Union shares in “street name” indicating that the broker does not have discretionary authority as to certain shares to vote on the proposals, such shares will be considered present at the meeting for purposes of determining the presence of a quorum but will not be considered entitled to vote.

Required Vote

The merger agreement and the transactions contemplated thereby, including the merger, must receive the approval of the holders of a majority of the outstanding shares of Southern Union common stock entitled to vote as of the record date.

The affirmative vote of the holders of a majority of the outstanding shares of Southern Union common stock having voting power represented at the special meeting in person or by proxy and entitled to vote as of the record date is required to approve the advisory (non-binding) vote on the compensation to be received by Southern Union’s named executive officers in connection with the merger and any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement. The vote of Southern Union stockholders on the compensation to be received by Southern Union’s named executive officers in connection with the merger is advisory in nature and will not be binding on ETE or the Southern Union Board.

Support Agreement

Concurrently with the execution of the merger agreement, Mr. Lindemann, Chairman of the Board and Chief Executive Officer of Southern Union, Mr. Herschmann, Vice Chairman of the Board, President and Chief Operating Officer of Southern Union, and members of Mr. Lindemann’s family, who directly or indirectly own approximately 16,744,285 shares of common stock of Southern Union (or approximately 20,139,036 shares when including unexercised options and shares of restricted stock that are not entitled to vote until exercise or the expiration of restrictions, respectively), representing approximately 13.43% of Southern Union’s outstanding shares of common stock, entered into a second amended and restated support agreement with ETE and Merger Sub, which replaces and supersedes the support agreement previously entered into by those parties in connection with the execution of the first amended and restated merger agreement. The support agreement provides, among other things, that such stockholders will vote their shares in favor of adoption of the merger agreement unless there is a change in the recommendation of the Southern Union Board and that they will elect to receive the common unit consideration of ETE rather than the right to receive $44.25 in cash in the merger (other than with respect to unexercised options and shares held in the Southern Union Savings Plan, which will be treated as described in “The Merger Agreement—Employee Equity-Based Awards”).

 

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Shares Beneficially Owned by Directors and Executive Officers

The members of the Southern Union Board and executive officers of Southern Union beneficially owned an aggregate of 12,133,132 Southern Union shares as of October 21, 2011. These shares represent in total approximately 9.7% of the total voting power of Southern Union’s voting securities.

Proxies

You may vote in person by ballot at the special meeting or by submitting a proxy. Please submit your proxy even if you plan to attend the special meeting. If you attend the special meeting, you may vote by ballot, thereby canceling any proxy previously given.

Voting instructions are included on your proxy card. If you properly give your proxy and submit it to Southern Union in time for it to be voted, one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against the proposals or abstain from voting.

Abstentions

The required vote to adopt the merger agreement and the transactions contemplated thereby, including the merger, is based upon the number of Southern Union shares issued and outstanding on the record date and entitled to vote, and not the number of Southern Union shares that are actually voted. Accordingly, the failure to submit a proxy card or to vote by internet, telephone or in person at the special meeting or an abstention from voting will have the same effect as a vote cast against the merger proposal.

The advisory vote and any vote to adjourn the special meeting to solicit additional proxies in favor of the proposal to adopt the merger agreement each requires the affirmative vote of the holders of a majority of the outstanding Southern Union shares having voting power represented at the special meeting in person or by proxy and entitled to vote as of the record date. Thus, an abstention will be the equivalent of a vote against each such proposal, while the failure to submit a proxy card or to vote by internet, telephone or in person at the special meeting will not have an effect on the vote.

Shares Held in Street Name

If you hold Southern Union shares in the name of a bank, broker or other nominee, you should follow the instructions provided by your bank, broker or nominee when voting your Southern Union shares or when granting or revoking a proxy.

Absent specific instructions from you, your broker is not empowered to vote your Southern Union shares. The shares not voted because brokers lack power to vote them without instructions are also known as “broker non-votes.”

Broker non-votes will have the same effect as a vote against the proposal to adopt the merger agreement, but will not have an effect on the advisory vote or the vote to adjourn the special meeting.

How to Submit Your Proxy

By Mail: To submit your proxy by mail, simply mark your proxy, date and sign it, and if you are a record holder of Southern Union shares, return it in the postage-paid envelope provided. If the envelope is missing, please address your completed proxy card to the address on your proxy card. If you are a beneficial owner, please refer to your instruction card or the information provided to you by your bank, broker, custodian or record holder.

By Telephone: If you are a Southern Union stockholder of record, you can submit your proxy by telephone by calling the toll-free telephone number on your proxy card. Telephone voting is available 24 hours a day and

 

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will be accessible until 1:00 a.m. Central time on December 9, 2011. Easy-to-follow voice prompts allow you to submit your proxy and confirm that your instructions have been properly recorded. If you are a beneficial owner, please refer to your instruction card or the information provided by your bank, broker, custodian or record holder for information on submitting voting instructions by telephone. If you submit your proxy by telephone you do not need to return your proxy card. If you are located outside the United States, Canada and Puerto Rico, please read your proxy card or other materials for additional instructions. If you hold Southern Union shares through a broker or other custodian, please check the voting form used by that firm to see if it offers telephone voting.

By Internet: You can also choose to submit your proxy on the internet. If you are a Southern Union stockholder of record, the website for internet voting is on your proxy card. Internet voting is available 24 hours a day and will be accessible until 1:00 a.m. Central time on December 9, 2011. If you are a beneficial owner, please refer to your instruction card or the information provided by your bank, broker, custodian or record holder for information on internet voting. As with telephone voting, you will be given the opportunity to confirm that your instructions have been properly recorded. If you submit your proxy on the internet, you do not need to return your proxy card. If you hold Southern Union shares through a broker or other custodian, please check the voting form to see if it offers internet voting.

In Person: If you are a Southern Union stockholder of record, you may vote by ballot at the special meeting or send a representative with an acceptable proxy that has been signed and dated. If your Southern Union shares are held in the name of a bank, broker or other nominee, you must obtain a proxy, executed in your favor, from the holder of record, to be able to vote at the special meeting.

Revoking Your Proxy

If you submit a completed proxy card with instructions on how to vote your Southern Union shares and then wish to revoke your instructions, you should submit a notice of revocation to the Secretary of Southern Union as soon as possible. You may revoke your proxy by internet, telephone or mail at any time before it is voted by:

 

   

timely delivery of a valid, later-dated proxy or timely submission of a later-dated proxy by telephone or internet;

 

   

written notice to the Secretary of Southern Union before the special meeting that you have revoked your proxy; or

 

   

voting by ballot at the special meeting.

Adjournments and Postponements

A meeting of Southern Union’s stockholders may be adjourned in the absence of a quorum, by the affirmative vote of the holders of a majority of the outstanding Southern Union shares having voting power represented at the special meeting either in person or by proxy. When a meeting is adjourned to another time and place, so long as the time and place thereof are announced at the meeting at which the adjournment is taken and the adjourned meeting is held within 30 days of the original meeting date, no notice need be given of the adjourned meeting and a new record date need not be set. If the adjournment is for more than 30 days or if a new record date is fixed, a notice of the adjourned meeting must be given.

In addition, at any time prior to convening the special meeting, the special meeting may be postponed without the approval of Southern Union stockholders. If postponed, Southern Union will publicly announce the new meeting date. Similar to adjournments, any postponement of the special meeting for the purpose of soliciting additional proxies will allow Southern Union stockholders who have already sent in their proxies to revoke them at any time prior to their use.

 

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Proxy Solicitation

ETE and Southern Union will each bear their own costs and expenses incurred in connection with the filing, printing and mailing of the document and the retention of any information agent or other service provider in connection with the merger. This proxy solicitation is being made by Southern Union on behalf of the Southern Union Board. Southern Union has hired Innisfree M&A Incorporated to assist in the solicitation of proxies. In addition to this mailing, proxies may be solicited by directors, officers or employees of Southern Union or its affiliates in person or by telephone or electronic transmission. None of the directors, officers or employees will be directly compensated for such services.

Other Business

The Southern Union Board is not currently aware of any business to be acted upon at the special meeting other than the matters described in this document. If, however, other matters are properly brought before the special meeting, the persons appointed as proxies will have discretion to vote or act on those matters as in their judgment is in the best interest of Southern Union and its stockholders.

 

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PROPOSAL 1 – THE MERGER

The following is a discussion of the merger and the merger agreement. This is a summary only and may not contain all of the information that is important to you. A copy of the merger agreement is attached to this document as Annex A and is incorporated by reference herein. Southern Union’s stockholders are urged to read this entire document, including the merger agreement, for a more complete understanding of the merger.

General

ETE and Southern Union agreed to the acquisition of Southern Union by ETE under the terms of the merger agreement that is described in this document. In the merger, Merger Sub will merge with and into Southern Union, with Southern Union surviving as a direct wholly owned subsidiary of ETE.

Background of the Merger

Southern Union’s management and the Southern Union Board over recent years regularly have considered Southern Union’s stand alone prospects and value in comparison to possible strategic transactions, including acquisitions, joint ventures, sales of businesses, mergers and sales of Southern Union.

In 2008, Southern Union’s common stock was trading below $20 per share, and the Board considered a range of potential strategic alternatives to enhance stockholder value. In March of 2008, the Southern Union Board considered the possibility of a stock buyback, but determined not to pursue that alternative. During 2008, a major private equity firm (“Company A”) proposed an acquisition of Southern Union, but after the execution of a confidentiality agreement and completion of due diligence, Company A determined that it was not in a position to proceed with a transaction. Also in 2008, an investment banking firm acting on behalf of a large transmission and exploration and production company (“Company B”) proposed a combination, but the Southern Union Board determined not to move forward with the proposal because the relative valuations proposed for the stock of the two companies were not favorable to Southern Union. During the fall of 2008, a diversified gas company (“Company C”) contacted Southern Union to discuss a potential combination, but based on a preliminary analysis including structural challenges for such a transaction and valuation issues, the Southern Union Board determined not to pursue the potential opportunity. Also during the fall of 2008, Mr. Lindemann was contacted by a private equity firm (“Company D”) as well as by two additional private equity and infrastructure firms (“Company E” and “Company F”) working together regarding alternative prospective transactions to acquire Southern Union. On November 12, 2008, Mr. Lindemann advised the Southern Union Board in executive session that he had been contacted by such parties regarding a potential “going private” transaction, but that discussions were at an exploratory stage and that he would update the Southern Union Board in the event such prospects should develop further.

On December 2, 2008, Mr. Lindemann requested that the Southern Union Board authorize Southern Union to enter into confidentiality agreements with Companies D, E and F to allow them to perform due diligence. At this time, the Southern Union Board, with the participation of Mr. Eric Herschmann, at such time the President and Chief Operating Officer of Southern Union but not a member of the Southern Union Board, discussed the conflicts potentially arising in such a transaction and ways of mitigating these conflicts. Accordingly, Mr. Herschmann requested that the independent directors make the decision regarding the advisability of entering into confidentiality agreements without his involvement or the involvement of Chairman Lindemann or his son Adam Lindemann, who served as a member of the Southern Union Board at such time. Mr. Herschmann further advised that were a proposal to be made, the Southern Union Board would then likely create a special committee to consider and make decisions with respect to any proposal, supported by such special committee’s counsel and financial advisor. At this time, the independent directors discussed with management and in executive session both the advisability of providing confidential information to these firms and the process that would be advisable if a transaction proceeded.

 

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Company D entered into a confidentiality agreement with Southern Union during December of 2008, and Company E entered into a confidentiality agreement in 2009, with Company F covered within the terms of Company E’s agreement. Southern Union began to make confidential information available to each of them in response to their diligence inquiries. All three firms performed significant due diligence on Southern Union, and received management presentations. Company D indicated an interest at a price below $20 per share, a level that the Southern Union Board believed was too low to pursue. Companies E and F, after months of diligence, determined that they were not in a position to pursue a transaction with Southern Union.

During the first half of 2010, an investment banking firm acting on behalf of a privately-held diversified natural gas company (“Company G”) approached management of Southern Union proposing a potential combination into Southern Union. Preliminary indications of value provided by the investment banking firm on behalf of Company G were no higher than mid-$20s per share, the proposed form of consideration was securities, and Company G was not willing to provide a value floor for the securities to be delivered in exchange for Southern Union’s shares. At this time, Southern Union’s shares were trading in a range of approximately $20 to $26 per share. The Southern Union Board did not find the potential transaction attractive, and no confidentiality agreement was entered into with Company G.

During the last half of 2010, management of Southern Union had preliminary discussions with an energy company (“Company H”) regarding either joint venture opportunities or a potential business combination, as management reported to the Southern Union Board, but Company H determined not to pursue either alternative and did not enter into a confidentiality agreement.

Also during the last half of 2010, investment bankers on behalf of two separate energy companies (“Company I” and “Company J”) approached management of Southern Union in light of discussions between Southern Union and Companies I and J in prior years to propose potential combinations with either Company I or Company J, but neither Company I nor Company J was interested in pursuing a combination transaction with Southern Union.

During the fourth quarter of 2010, a major utility company (“Company K”) approached management of Southern Union regarding a potential acquisition of Southern Union in a stock-for-stock transaction, with an initial indication of value for Southern Union of $32.50 per share and potentially higher. The Southern Union Board discussed the possibility of a transaction with Company K in executive session on December 14, 2010, and Company K entered into a confidentiality agreement with Southern Union soon thereafter. Preliminary discussions were sufficiently encouraging such that Southern Union engaged outside legal counsel, Locke Lord LLP (“Locke Lord”), to prepare an initial draft merger agreement for internal consideration and potential delivery to Company K. Following execution of the confidentiality agreement, Southern Union provided due diligence materials and management presentations to Company K, and Company K engaged in two months of diligence, after which time Company K advised Southern Union in February 2011 that its indicated price range had dropped to a range of $27 to $28 per share. Company K further advised that even at that reduced level, it was not prepared to proceed at that time.

In January of 2011, another major utility company (“Company L”) approached Mr. Herschmann regarding a potential acquisition at an indicated price level of $33 per share. On January 28, 2011, Messrs. Lindemann and Herschmann reported to the Southern Union Board that Company L had initiated the contact, and that the two of them were scheduled to meet the following week with the Chairman of Company L, which meeting proceeded as planned. After the execution of a confidentiality agreement, Southern Union provided Company L with confidential information for diligence review and provided management presentations to Company L. Following completion of over a month of due diligence in March of 2011 Company L advised that its indicated price range had declined to $26 per share, and it was not prepared to make an offer at that time.

Chairman Lindemann also advised the Southern Union Board on January 28, 2011 that he had been contacted by an investment banker on behalf of The Williams Companies, Inc. (“Williams”), and that even

 

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though discussions with Companies K and L were proceeding, he and Mr. Herschmann were scheduled to meet with the Chairman of Williams, Mr. Alan Armstrong, the following week, in order to determine if Williams might make a proposal superior to Company K’s or Company L’s indication. At the meeting of Messrs. Lindemann and Herschmann with Mr. Armstrong on January 31, 2011, Mr. Armstrong first acknowledged that Southern Union had engaged in a number of discussions with investment bankers on behalf of Williams and that Williams had declined to pursue each of the transactions previously contemplated, including a proposal by Williams to engage in a structured tax-free transaction with Southern Union. He then advised that Williams could see its way to a price of $30 per share, but that a potential transaction would require diligence and be conditioned on the divestiture of certain material assets. Based on this indication, together with the pursuit of potential transactions with Companies K and L at the time at higher price indications, the Southern Union Board determined in February not to commence discussions with Williams.

On or about May 1, 2011, around the time of the public announcement by ETP and Regency of the acquisition of all of the membership interests in LDH Energy Asset Holdings LLC, an investment banker, representing ETE, contacted Mr. Herschmann to broach the possibility of a combination of Southern Union with ETE. An investment banker indicated to Mr. Herschmann that ETE had an interest in acquiring Southern Union in an exchange of ETE common units for company stock valued at $30 to $31 per share. Mr. Herschmann informed Chairman Lindemann of the conversation, and on May 3, 2011 and May 4, 2011, Mr. Herschmann informed the Southern Union Board, in executive session, of the inquiry. The Southern Union Board discussed the possible transaction and the effects on management of the near continuous strategic discussions with third parties since 2008. The Southern Union Board then authorized the negotiation and execution of a confidentiality agreement with ETE. The Southern Union Board authorized Messrs. Lindemann and Herschmann to enter into preliminary negotiations for indications of interest from ETE on terms more favorable than those proposed by ETE.

From May 4, 2011 through May 9, 2011, Messrs. Lindemann and Herschmann engaged in discussions with Credit Suisse regarding structure and pricing to further assess the viability of a potential transaction with ETE. On May 4, 2011, Mr. Lindemann received a call from Mr. Kelcy Warren, the Chairman of ETE, indicating his desire to pursue further discussions and to meet with Messrs. Lindemann and Herschmann. Mr. Herschmann informed Credit Suisse that if ETE were to suggest an indication of interest of $33 per share, a meeting would be prudent. The parties agreed to meet on May 10, 2011, in New York City.

On May 10, 2011, Messrs. Lindemann and Herschmann met with principals from ETE and representatives of Credit Suisse in New York City. ETE suggested that a transaction be considered for an exchange of company shares for Series B Units at a price of $33 per share and a preferred distribution of between 5% and 5.5%, or alternatively, for an exchange of Southern Union’s stock for 50% ETE common units and 50% cash.

On May 12, 2011, Southern Union, ETE and ETP entered into a confidentiality agreement, and Southern Union furnished limited confidential information to ETE and thereafter discussed further with ETE the structure of a potential transaction and the potential terms of the securities of ETE that might be afforded to the stockholders of Southern Union in a combination.

On May 19, 2011, Messrs. Lindemann and Herschmann updated the Southern Union Board on negotiations with ETE. Mr. Herschmann also confirmed to the Southern Union Board that, pursuant to its direction, neither he nor Mr. Lindemann had discussed with senior management of Southern Union any potential transaction with ETE, other than informing Richard N. Marshall, the Chief Financial Officer of Southern Union, that certain information was needed for the due diligence review of ETE.

On May 20, 2011, Credit Suisse provided Mr. Herschmann with a preliminary Series B unit term sheet, describing only the proposed terms of a potential Series B class of securities of ETE (the “Series B Units”), and Mr. Herschmann consulted with Southern Union’s corporate counsel Locke Lord and with Southern Union’s tax counsel Roberts & Holland LLP (“Roberts & Holland”) regarding the potential terms of the Series B Units. Messrs. Lindemann and Herschmann negotiated with ETE through Credit Suisse regarding the prospective terms

 

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of the Series B Units, and determined that it would be desirable, as no overall term sheet had been proposed for the potential transaction, for Locke Lord to prepare a discussion draft of a potential merger agreement, drawn from a template developed for Company K, which included provisions regarding potential employee retention arrangements and any consulting or noncompetition agreements to be required by ETE, together with a full draft of the potential terms of the Series B Units in order to identify issues for the proposed transaction, and Locke Lord furnished such discussion drafts to ETE on May 26, 2011.

On May 27, 2011, Southern Union, through Locke Lord, contacted Morris, Nichols, Arsht & Tunnell LLP (“Morris Nichols”) to inquire if Morris Nichols could be engaged to advise on Delaware law.

At a Southern Union Board meeting on May 27, 2011, attended by representatives of Locke Lord, Mr. Herschmann noted that at the instruction of the Southern Union Board, no non-director employees of Southern Union other than Mr. Marshall were currently aware of the possibility of a transaction with ETE and discussed Mr. Marshall’s involvement with ETE in preparing for presentations to ratings agencies with respect to debt ratings that would be anticipated for ETE following an acquisition of Southern Union. Mr. Herschmann then described the potential terms of the Series B Units, including potential conversion rights of the Series B Units into ETE common units. Mr. Don Glendenning of Locke Lord also discussed with the directors various legal issues relating to the proposed transaction. The Southern Union Board urged Messrs. Lindemann and Herschmann to proceed with the negotiations.

On May 31, 2011, ETE provided Southern Union with a revised draft of the initial discussion draft of the potential merger agreement provided by Locke Lord on May 26, 2011. The revised draft of the merger agreement specified that it would be a condition to the closing of the merger transaction that Messrs. Lindemann and Herschmann enter into consulting and noncompetition agreements with ETE.

At a Southern Union Board meeting on June 2, 2011, Mr. Herschmann provided a status report on the negotiations with ETE. He advised the Southern Union Board of the requirements of consulting and noncompetition agreements from Messrs. Lindemann and Herschmann contained in the May 31, 2011 draft of the merger agreement received from ETE and that Southern Union had sought legal advice from Mr. Glendenning of Locke Lord regarding issues presented by such requirement. He further advised the Southern Union Board that neither he nor Mr. Lindemann had discussed consulting or noncompetition agreements with ETE. Mr. Glendenning of Locke Lord discussed with the Southern Union Board various legal issues relating to the Southern Union Board’s consideration of the proposed transaction.

The Southern Union Board unanimously adopted resolutions creating the Southern Union Special Committee consisting of Messrs. David Brodsky, Franklin W. Denius, Kurt A Gitter, Herbert H. Jacobi, Thomas N. McCarter, III, George Rountree, III and Allan D. Scherer, with the authority to engage such legal, financial and other advisors as the Southern Union Special Committee may from time to time deem necessary, appropriate or advisable. As Mr. Frederick Alexander of Morris Nichols was standing by to meet with the Southern Union Special Committee, the Southern Union Special Committee then determined to meet with Morris Nichols without the presence of any management personnel of Southern Union and without the presence of Messrs. Lindemann and Herschmann.

During the initial meeting of the Southern Union Special Committee on June 2, 2011, Mr. Alexander discussed various legal issues relating to the Southern Union Special Committee’s consideration of the proposed transaction. Following discussion of such matters, the Southern Union Special Committee determined to instruct Messrs. Lindemann and Herschmann to maintain their conduct of not having any discussions regarding potential consulting or noncompetition agreements until the Southern Union Special Committee should advise them that it would be appropriate to do so. The Southern Union Special Committee also discussed the engagement of a financial advisor, particularly the potential engagement of Evercore. The Southern Union Special Committee also discussed appointing Mr. McCarter and Mr. Denius to a Subcommittee of the Southern Union Special Committee (the “Subcommittee”) to be able to give guidance to management and advisors and make decisions at times when the full Southern Union Special Committee might be unable to meet. The Southern Union Special Committee ultimately granted the Subcommittee the full power of the Southern Union Special Committee.

 

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On June 3, 2011, the Subcommittee met with representatives of Morris Nichols and discussed the role of both the Subcommittee and the Southern Union Special Committee in connection with the potential transaction with ETE. The Subcommittee discussed recommending that the Southern Union Special Committee formally retain Morris Nichols as its legal advisor and Evercore as its financial advisor.

At a Southern Union Board meeting on June 5, 2011, Mr. Marshall, the Chief Financial Officer of Southern Union, reported on the presentations made to the ratings agencies with ETE, and Mr. Glendenning of Locke Lord and Mr. Alexander of Morris Nichols reported on the status of the draft merger agreement.

On June 5, 2011, ETE provided its draft of a full amendment and restatement of its partnership agreement, placing in full text for a complete restatement the terms of the proposed Series B Units.

In a meeting of the Southern Union Special Committee held on June 7, 2011, the Southern Union Special Committee instituted a practice followed in all of its subsequent meetings, which was to have all directors, together with representatives of Locke Lord, present at the beginning of each meeting for updates, reports and full group deliberations, followed by a session with only the members of the Southern Union Special Committee and its advisors at the end of each meeting. Evercore described the work that Evercore was performing to analyze the value of Southern Union and the potential value offered by a combination with ETE. Mr. Alexander discussed various legal issues pertaining to the transaction. The Southern Union Board considered the status of the negotiations of a draft merger agreement, including the structure of the proposed transaction, the provisions in the draft merger agreement that could make it more difficult or costly to accept a higher unsolicited proposal should one emerge after announcement of a transaction with ETE, and the negotiating history between Southern Union and ETE regarding no-shop, window-shop, go-shop and force-the-vote provisions, and potential approaches to further negotiating such provisions. The Southern Union Special Committee unanimously adopted resolutions to retain Evercore and Morris Nichols as its financial advisor and legal counsel, respectively, formally created the Subcommittee, consisting of Mr. McCarter as Chairman and Mr. Denius, and appointed Mr. McCarter as Chairman of the Southern Union Special Committee.

On June 8, 2011, after consultation with members of the Southern Union Special Committee, Morris Nichols, Roberts & Holland and management of Southern Union, Locke Lord furnished to counsel for ETE, Latham & Watkins LLP (“Latham & Watkins”), a revised draft of the merger agreement, deleting the support agreement and force-the-vote provisions and including a go-shop provision. The following day, Locke Lord furnished to Latham & Watkins a revised draft of the amended and restated partnership agreement.

At a meeting of the Subcommittee on June 10, 2011, the Subcommittee requested Mr. Glendenning of Locke Lord to update the Southern Union Special Committee on the negotiations of the potential merger agreement with ETE. Mr. Glendenning discussed various legal issues pertaining to the negotiations for the potential merger agreement. The Subcommittee considered several terms of the proposed Series B Units, including voting rights, rights if quarterly distributions were not paid and the treatment of the Series B Units as pari passu with ETE’s Series A Preferred Units, and other related issues for the proposed Series B Units. The Subcommittee also considered several aspects of the merger agreement, including the representations and warranties, the go-shop or no-shop provision, the fiduciary out provision, the force-the-vote provision and the termination fee that might be included in the merger agreement. The Subcommittee also considered various issues pertaining to the support agreement that ETE had proposed that certain stockholders of Southern Union enter into agreeing to vote in favor of the merger transaction with ETE and explained that the Subcommittee and Southern Union Special Committee should evaluate the effect of any support agreement on the ability of a third party to consummate an alternative transaction. At the Subcommittee’s request, Mr. Glendenning and Melissa DiVincenzo of Morris Nichols discussed various legal issues pertaining to the Subcommittee’s consideration of the proposed transaction. The Subcommittee members then discussed the potential for terminating the proposed merger agreement in the event that a superior offer was made.

A meeting of the Southern Union Special Committee was held later in the day on June 10, 2011, at which meeting Mr. Glendenning discussed various legal issues pertaining to the negotiations for the proposed merger

 

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agreement. The Southern Union Special Committee discussed the terms of several possible provisions including a reverse-termination fee provision, Southern Union’s right to sue for a breach of the merger agreement; the no-shop provision with a fiduciary termination right; the termination fee; and a force-the-vote provision.

The Southern Union Special Committee met at 8:00 a.m. Eastern Time on June 11, 2011, to discuss terms to be negotiated for the potential merger agreement. At the request of the Southern Union Special Committee, Mr. Herschmann together with Mr. Glendenning of Locke Lord discussed developments in ongoing negotiations and various legal issues relating to the proposed merger. The Southern Union Special Committee considered the evolving terms of the Series B Units, the requirement of ETE that the merger agreement include a no-shop provision, and whether a bifurcated termination fee would be appropriate. The Southern Union Special Committee also discussed the advisability of informing the senior management of Southern Union of the proposed transaction, the potential preparation of final documents and diligence considerations.

Promptly following the 8:00 a.m. meeting of the Southern Union Special Committee, the Subcommittee met with Morris Nichols at approximately 9:20 a.m. Eastern Time on June 11, 2011. At the request of the Subcommittee, Mr. Alexander discussed the fiduciary duties of the members of the Southern Union Special Committee in connection with the potential transaction with ETE.

Following negotiations between Southern Union and ETE, the Southern Union Special Committee held another meeting on June 11, 2011, at 4:00 p.m. Eastern Time, attended for the first portion of the meeting by all directors and by representatives of Evercore, Morris Nichols, Locke Lord and Roberts & Holland. Roberts & Holland explained certain tax considerations for the proposed transaction, and Mr. Glendenning of Locke Lord and Mr. Alexander of Morris Nichols discussed various legal issues relating to the status of negotiations for the proposed merger agreement. The Southern Union Special Committee considered the contemplated no-shop provision, fiduciary out provision, match right and termination fee, with the prospect for a bifurcated termination fee. The Southern Union Special Committee discussed their fiduciary duties and potential steps to ensure that the proposed transaction with ETE represented the best value reasonably attainable for Southern Union’s stockholders. The Southern Union Special Committee reviewed Southern Union’s prior discussions with other parties who had expressed an interest in a potential transaction with Southern Union. The Southern Union Special Committee also discussed the potential benefits and drawbacks of various strategies for approaching the process for selling Southern Union and considered the potential advantages and disadvantages of pursuing a single-bidder sale strategy versus conducting a fuller market check. The Southern Union Special Committee then met alone with its advisors to discuss various legal and strategic issues relating to its strategy to maximize stockholder value including Southern Union’s history of discussions with other potential acquirers. Mr. Alexander again discussed the directors’ fiduciary duties in connection with the proposed transaction. The Southern Union Special Committee, considering a range of factors, determined to continue to work toward a favorable transaction with ETE, including terms that would permit a post-signing market check.

Negotiations between the parties continued, and the Southern Union Special Committee convened again at 6:00 p.m. Eastern Time on June 11, 2011, with representatives of Evercore, Morris Nichols, Locke Lord and Roberts & Holland in attendance. At the request of the Southern Union Special Committee, Mr. Herschmann reported on the current state of negotiations, and he left the meeting several times to negotiate further with ETE’s representatives, returning to seek guidance from the Southern Union Special Committee regarding how to proceed. The Southern Union Special Committee reviewed the various terms of the proposed agreement and discussed potential termination fees, including the desirability of a bifurcated termination fee, the typical size of termination fees and the likely effect of a termination fee on other potential bidders. Prior to the conclusion of the meeting, the Southern Union Special Committee determined that the parties had reached a preliminary agreement on the material terms of the proposal. At the request of the Southern Union Special Committee, Mr. Glendenning then discussed various legal issues relating to the proposed merger agreement. Mr. Herschmann also discussed the need to disclose the proposal to senior managers of Southern Union, and the Southern Union Special Committee advised Messrs. Lindemann and Herschmann that it would be appropriate to disclose the proposed transaction to the senior managers of Southern Union.

 

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The Southern Union Special Committee met during the morning of June 12, 2011, for a report from Mr. Herschmann regarding remaining steps to complete a proposed transaction with ETE. Mr. Herschmann explained that, pursuant to the Southern Union Special Committee’s instructions the preceding night, he earlier in the day had informed several of Southern Union’s senior managers of the existence and general structure of the proposal and had discussed with those senior managers responding to the due diligence questions from ETE and the preparation of disclosure schedules to the merger agreement. Mr. Glendenning of Locke Lord and Mr. Alexander and Ms. DiVincenzo of Morris Nichols also discussed various legal issues pertaining to the proposed merger agreement. The Southern Union Special Committee authorized the Subcommittee to negotiate, within specified boundaries, the value of the termination fee and expense cap. Following its determination that all material terms, including price, of the proposal had been agreed upon by Southern Union and ETE, the Southern Union Special Committee unanimously determined to authorize Messrs. Lindemann and Herschmann to discuss the ancillary agreements requested by ETE, which ETE had indicated were a condition to consummating the proposed merger transaction.

Promptly following the June 12, 2011 morning meeting of the Southern Union Special Committee, the Southern Union Special Committee advised Messrs. Lindemann and Herschmann that they were authorized to discuss the proposed ancillary agreements with ETE. Communications regarding the potential consulting and noncompetition agreements took place among Messrs. Lindemann and Herschmann and principals of ETE on June 12, 13 and 14, including a meeting in Dallas between Mr. Herschmann and Mr. Warren, the Chairman of ETE, as well as other senior executives of ETE and its affiliates, on June 13, at which time the principal terms of the ancillary agreements were agreed upon. Messrs. Lindemann and Herschmann and their personal legal counsel worked with ETE and its counsel to finalize the terms for the consulting and noncompetition agreements on June 14.

During the afternoon of June 14, 2011, the Southern Union Special Committee met, and Mr. Herschmann reported to the Southern Union Special Committee that he and Mr. Lindemann each had negotiated consulting and noncompetition agreements with ETE and described the duration of those agreements and the consideration to be received by each of Mr. Lindemann and Mr. Herschmann pursuant to those agreements. Evercore reviewed with the Southern Union Special Committee the materials that Evercore had prepared and distributed to the Southern Union Special Committee prior to the meeting. In accordance with its practice, the Southern Union Special Committee then met alone with its advisors and discussed the noncompetition and consulting agreements that Mr. Lindemann and Mr. Herschmann had each agreed to enter into with ETE. The Southern Union Special Committee considered a number of factors, including Messrs. Lindemann’s and Herschmann’s rights to additional change-in-control payments, the size of payments to be received by each in exchange for the consulting and noncompetition agreements, the duration of the consulting and noncompetition agreements and the extent of Messrs. Lindemann’s and Herschmann’s likely involvement in the post-merger business of ETE.

On June 15, 2011, the Southern Union Special Committee met first at 4:00 p.m. Eastern Time for a report from Mr. Glendenning of Locke Lord on the final drafting terms being negotiated. Mr. Herschmann discussed the ratings agencies’ preliminary responses, and plans for informing management and employees of Southern Union as well as the public announcement of the proposed merger, along with anticipated investor presentations by Southern Union and ETE. At Mr. Herschmann’s request, Mr. Alexander of Morris Nichols reviewed various legal issues pertaining to the proposed merger agreement. Drafts of Evercore’s fairness opinion were circulated to the Southern Union Special Committee.

Late in the evening of June 15, 2011, the ETE Board met to approve the merger, the merger agreement and the related transactions.

Shortly after 11:00 p.m. Central Time on June 15, 2011 (and shortly after Midnight Eastern Time on June 16, 2011), the Southern Union Special Committee met to review the final merger agreement. Under the terms of the final merger agreement, shares of Southern Union common stock would be converted into Series B

 

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Units with a liquidation value of $33.00 per unit, or approximately $4.2 billion. The Series B Units would generally be pari passu with ETE’s Series A Preferred Units and would be entitled to quarterly distributions of 2.0625% through the third year after issuance and thereafter, the greater of (i) 8.25% and (ii) the then current 3-month LIBOR rate plus 750 basis points, in each case divided by 4. Additionally, ETE would have the option to redeem the Series B Units at any time after the closing of the merger for the liquidation value ($33.00 per unit plus any unpaid quarterly distributions). Under certain circumstances and at specified times, a holder of Series B Units would have the option to convert such units into ETE common units (initially, one Series B Unit would convert into 0.770 ETE common units) or into an equally valued number of ETP common units. Mr. Glendenning of Locke Lord reported on the final drafting revisions involved in finalizing the merger agreement, and the Southern Union Special Committee requested representatives of Evercore to present Evercore’s fairness opinion. Following discussion, the Southern Union Special Committee recommended the merger agreement for approval, which then was approved by a meeting of the Southern Union Board immediately following the meeting of the Southern Union Special Committee. On June 16, 2011, ETE and Southern Union announced that they had entered into the merger agreement (the “ETE Merger Agreement”).

On June 23, 2011, the Southern Union Board received an unsolicited proposal from Williams to acquire all of the issued and outstanding shares of common stock of Southern Union for $39 per share in cash (the “Williams Proposal”). Following receipt of the Williams Proposal, the Southern Union Special Committee engaged Sullivan & Cromwell, LLP (“Sullivan & Cromwell”) as additional counsel to the Southern Union Special Committee.

A meeting of the Southern Union Board was held on June 24, 2011 to discuss the Williams Proposal, with representatives of Evercore, Sullivan & Cromwell, Morris Nichols and Locke Lord present. Mr. Herschmann informed the Southern Union Board that he had received a voicemail from Mr. Armstrong, Chief Executive Officer of Williams, approximately twenty minutes before Williams publicly disclosed the Williams Proposal, and that Mr. Herschmann had attempted unsuccessfully to return the call. The Southern Union Board discussed the fact that the wording of the Williams Proposal inaccurately implied that the Southern Union Board previously had rebuffed a Williams approach at a valuation similar to the $39 proposal, and that such misperception should be corrected. Mr. Herschmann proposed that he send a letter to Mr. Armstrong, to be filed on Form 8-K with the SEC, clarifying the substance of Williams’ earlier approach. The Southern Union Board concurred with the approach, and Mr. Herschmann transmitted a letter to such effect following the close of the market the following day, with a concurrent Form 8-K filing. The Southern Union Board discussed the substance of the Williams Proposal and the criteria for constituting a superior offer pursuant to the ETE Merger Agreement. Representatives of Evercore provided initial comments regarding the credibility of Williams as a bidder, the likely ability of Williams to finance the proposal and the valuation analysis Evercore would pursue, including the potential premium in excess of $33 per share that the ETE Merger might be worth given the yield on the Series B Units and the potential for conversion into ETE or ETP common units. The Southern Union Board then discussed the possibility of securing greater value for Southern Union stockholders from ETE.

Later during the day on June 24, 2011, Mr. Armstrong placed a call to Mr. Lindemann, during which Mr. Lindemann advised Mr. Armstrong that the Southern Union Board would review the Williams Proposal and get back to Williams soon. Immediately after the call with Mr. Armstrong, Mr. Herschmann faxed a letter to Mr. Armstrong acknowledging receipt of the indication of interest from Williams and stating that the Southern Union Special Committee and the full Southern Union Board, with their financial and legal advisors, were analyzing the indication of interest and would get back to Williams expeditiously.

The Southern Union Board met on June 25, 2011, with representatives from Evercore, Sullivan & Cromwell, Morris Nichols and Locke Lord attending. Mr. Lindemann reported on the contact with Mr. Armstrong the preceding day. Representatives of Evercore reported that Evercore was working on its economic analysis and again briefly discussed the initial market reaction to the Williams Proposal and their views on Williams’ ability to finance its proposal. Mr. Herschmann expressed the view that clarification from

 

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Williams regarding regulatory and financing matters would be desirable. Mr. Alexander of Morris Nichols discussed various legal issues relating to the indication of interest from Williams. The Southern Union Special Committee then met following the Southern Union Board meeting. Shortly after the June 25, 2011 Southern Union Board meeting, Latham & Watkins sent a letter to Locke Lord characterizing the Williams Proposal as speculative and conditional and expressing the view that the Southern Union Board could not conclude that the Williams Proposal was reasonably likely to lead to a superior offer in accordance with the ETE Merger Agreement or conclude in good faith that the failure to engage in discussions or negotiations with Williams would be reasonably likely to constitute a breach by the Southern Union Board of its fiduciary duties.

The Chairman of the Southern Union Special Committee met on June 26, 2011 with representatives of Sullivan & Cromwell to discuss the process for moving forward with consideration of the Williams Proposal. During the course of this meeting, the Chairman of the Southern Union Special Committee asked the Sullivan & Cromwell representatives to also speak by telephone with Mr. Denius, the other member of the Subcommittee. The Sullivan & Cromwell attorneys discussed various legal issues relating to the Williams Proposal, and the directors considered how to organize the response to the Williams Proposal in a manner that would take into account the conflicting interests of Messrs. Lindemann and Herschmann arising from the consulting and noncompetition agreements, while taking advantage of their skills and experience to negotiate the highest possible values from both Williams, if negotiations with Williams were permitted under the ETE Merger Agreement, and ETE.

During the week of June 26, 2011 the Subcommittee determined that it would be advisable to engage Goldman Sachs as an additional financial advisor to the Southern Union Special Committee, and arranged for such engagement with Goldman Sachs.

Early on June 27, 2011, the Southern Union Special Committee sent a letter to Williams seeking additional information related to the financing arrangements to support its proposal as well as additional information related to resolving potential regulatory issues. At a 7:30 a.m. Eastern Time meeting of the Southern Union Board on June 27, 2011, representatives of Sullivan & Cromwell advised the Southern Union Board of matters they could consider in determining, and what they had to find in order to determine, in each case under the terms of the ETE Merger Agreement and applicable law, that the Williams Proposal was reasonably likely to lead to a superior offer. Evercore then presented its analysis of the respective merits of the ETE Merger Agreement and the Williams Proposal. Before making a determination with respect to the Williams Proposal, the Southern Union Board determined to wait for receipt of the additional clarification it had sought from Williams on its financing and its plan for obtaining regulatory approvals, and the Southern Union Board agreed to reconvene when the response was received. The Southern Union Special Committee then held a separate meeting.

The Southern Union Board met again on June 27, 2011, at 5:30 p.m. Eastern Time and asked representatives of Evercore to present Evercore’s analysis of the response to Southern Union’s request for clarification concerning financing received earlier that day from Williams, and Evercore advised that the new letter, combined with Evercore’s independent analysis, led Evercore to conclude that Williams could finance the Williams Proposal. The Southern Union Board also discussed Williams’ commitment to obtain regulatory approvals. The Southern Union Board obtained advice from its legal and financial advisors regarding its response to the Williams Proposal. The Southern Union Board unanimously determined to share information with Williams, subject to Williams’ execution of a confidentiality agreement in a form that complied with the requirements of the ETE Merger Agreement and on terms approved by the Southern Union Special Committee.

Following the evening Southern Union Board meeting on June 27, 2011, Mr. Glendenning of Locke Lord advised ETE and Latham & Watkins of the Southern Union Board’s determination to share information with Williams. Later that night, Latham & Watkins sent a letter to Locke Lord advising that it was ETE’s position that Southern Union’s engaging in discussions with, or furnishing non-public information to, Williams would constitute a willful and intentional breach of the ETE Merger Agreement. On June 28, 2011, Locke Lord furnished a response to ETE and Latham & Watkins advising that Southern Union respectfully disagreed with

 

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ETE’s position, and that Southern Union had exercised great care, and would continue to exercise great care, to comply fully with the terms of the ETE Merger Agreement. Also on June 28, 2011, ETE and Southern Union made their HSR Act filings with respect to the ETE Merger Agreement.

On June 29, 2011, Southern Union entered into a confidentiality agreement with Williams and then held a clarification telephone conference with Williams and certain of its advisors to achieve a more complete understanding of Williams’ plans for dealing with financing and regulatory requirements. Following such conference, Southern Union made confidential information available to Williams and its advisors and began negotiations with respect to the terms and documentation for a potential transaction in connection with the Williams Proposal.

The Southern Union Board met on June 30, 2011, for an update regarding diligence for the Williams Proposal. In addition to updating the Southern Union Board on the status of responses to diligence requests from Williams and its advisors, Messrs. Lindemann and Herschmann expressed their concerns about responses to their consulting and noncompetition agreements with ETE. Notwithstanding the process followed by the Southern Union Special Committee and Messrs. Lindemann and Herschmann, their agreements with ETE had, in the view of Messrs. Lindemann and Herschmann, become public distractions from their efforts to maximize Southern Union stockholder value, and accordingly, Messrs. Lindemann and Herschmann intended to terminate such agreements unilaterally. The independent directors obtained legal advice from their legal advisors. Before meeting separately as a Southern Union Special Committee, the independent directors stated that they did not support a unilateral termination that ETE might assert as a breach of the ETE Merger Agreement.

The Southern Union Board met on July 1, 2011, and again discussed the intention of Messrs. Lindemann and Herschmann to terminate unilaterally their consulting and noncompetition agreements. Mr. Herschmann indicated that he and Mr. Lindemann would attempt to do so in consultation with ETE, but that he and Mr. Lindemann desired to terminate the agreements in any event, expressing the hope that the terminations could be accomplished amicably. Chairman of the Southern Union Special Committee McCarter stated that, although the independent directors could not sanction the unilateral termination of the consulting and noncompetition agreements, he wished to clarify that the independent directors were extremely appreciative of Mr. Lindemann and Mr. Herschmann for the value they had achieved for Southern Union’s stockholders. Mr. McCarter reminded the Southern Union Board that Messrs. Lindemann and Herschmann had waited until all material terms of the ETE Merger Agreement had been fully negotiated before discussing the terms of the consulting and noncompetition arrangements with ETE. The other independent directors concurred with Mr. McCarter. Mr. Herschmann advised the Southern Union Board that he intended to meet with ETE Chairman Kelcy Warren over the July 4, 2011, weekend regarding the termination of the consulting and noncompetition agreements and to encourage ETE to propose to amend the ETE Merger Agreement to increase the value to Southern Union stockholders in light of the Williams Proposal of $39 per share in cash.

During the weekend of the July 4, 2011 holiday, Mr. Herschmann had extensive discussions with ETE and its representatives, and arranged to meet with Mr. Warren on the morning of July 4, 2011. Mr. Herschmann met with Mr. Warren to discuss the desire and intention of Messrs. Herschmann and Lindemann to terminate their consulting and noncompetition agreements with ETE and to encourage ETE to propose increasing the consideration to be received by Southern Union stockholders. Mr. Warren indicated that in the event that ETE were to submit an enhanced proposal that was accepted by Southern Union, he reluctantly would agree to the terminations of the consulting and noncompetition agreements by Messrs. Lindemann and Herschmann. Shortly after the meeting between Messrs. Warren and Herschmann, representatives of Latham & Watkins furnished a draft revised merger agreement from ETE to Mr. Glendenning of Locke Lord for review with Mr. Herschmann, and Mr. Herschmann engaged in negotiations with ETE and its representatives continuously until a Southern Union Board meeting scheduled for 5:00 p.m. Eastern Time.

The Southern Union Board met at 5:15 p.m. Eastern Time on July 4, 2011, as soon as Mr. Herschmann could be available from his calls with ETE and its representatives, at which time Mr. Herschmann advised the

 

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Southern Union Board that ETE had decided to move forward with a proposal to amend the ETE Merger Agreement to provide for cash of $40 per share and 0.903 ETE common units based on an exchange ratio based on the recent trading prices for ETE common units and Southern Union common stock, in each case subject to an election by Southern Union stockholders (subject to a maximum of 60% of the total merger consideration payable in cash and a maximum of 50% of the total merger consideration payable in ETE common units), with no financing contingencies and a “hell or high water” commitment regarding antitrust regulatory matters (the “Amended ETE Proposal”). Mr. Herschmann also relayed that ETE would agree to the enhanced proposal only if Southern Union agreed to execute an amended and restated merger agreement that night.

Mr. Herschmann also reminded the directors that Goldman Sachs had been engaged by the Subcommittee as an additional financial advisor to the Southern Union Special Committee, and that Goldman Sachs was available to join the call, as representatives of Goldman Sachs then did. The Southern Union Board informed Goldman Sachs that the Southern Union Board was considering the Amended ETE Proposal and asked Evercore and Goldman Sachs whether, based on their work to date and any additional work needed, each would be in a position to analyze the Amended ETE Proposal and potentially render a fairness opinion that evening if they found the Amended ETE Proposal fair to Southern Union’s stockholders from a financial point of view. Both Evercore and Goldman Sachs said that they could do so. Among the factors considered by the directors in consultation with the financial advisors to the Special Committee was the judgment that while the Series B Units as contemplated by the June 15, 2011 merger agreement with ETE should have a value in excess of the stated $33 per share liquidation value of the Series B Units, such units would not be as valuable to Southern Union’s stockholders as the ETE common units based upon the exchange ratio proposed for the Amended ETE Proposal. Such analysis reflected the terms of the Series B Units, including that such units would not become convertible into ETE common units until the first anniversary of issuance and were subject to redemption prior to such time. The Southern Union Board then requested Mr. Herschmann to indicate to Mr. Warren that the Southern Union Board’s initial impression of the Amended ETE Proposal was generally favorable but that they had a few reservations, particularly concerning an increased termination fee, that the attorneys would review the financing commitment and proposed amended merger agreement and that Evercore and Goldman Sachs were analyzing the Amended ETE Proposal for their proposed fairness opinions. Mr. Herschmann did so, and the Southern Union Board determined to reconvene at approximately 9:00 p.m. Eastern Time. The ETE Board convened a meeting to approve the merger, the merger agreement and related transactions.

When the Southern Union Board reconvened shortly after 9:00 p.m. Eastern Time on July 4, 2011, Mr. Herschmann reported on the negotiations since the Southern Union Board had last convened and noted that ETE had agreed to reduce the termination fee from a request of over $200 million to $162.5 million, with an expense reimbursement cap of $50 million. Representatives of Sullivan & Cromwell advised that the review of the financing documents indicated that the financing commitment documentation generally was quite strong and that a revised draft of the merger agreement had been sent to ETE, with the expectation that the issues could be worked out to Southern Union’s satisfaction. The Southern Union Board provided guidance on negotiation terms, and the representatives of Southern Union negotiated the final provisions of the revised merger agreement while the Southern Union Board remained in session. When the merger agreement was finalized, Evercore and Goldman Sachs delivered their fairness opinions and first the Southern Union Special Committee recommended, and then the Southern Union Board approved, the revised merger agreement. On July 5, 2011, ETE and Southern Union announced they had entered into the first amended and restated merger agreement.

On July 14, 2011, the Southern Union Board received a second unsolicited proposal from Williams to acquire all of the issued and outstanding shares of common stock of Southern Union for $44 per share in cash (the “Second Williams Proposal”), subject to completion of due diligence and negotiation of a mutually acceptable merger agreement. The Second Williams Proposal included a proposed schedule of events, described as “crucial” to the proposal in the letter from Williams, leading to an agreement between Southern Union and Williams on July 19, 2011. A draft of a proposed merger agreement also was included with the Second Williams Proposal.

 

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A meeting of the Southern Union Board was held on July 14, 2011 to discuss the Second Williams Proposal, with representatives of Evercore, Goldman Sachs, Sullivan & Cromwell, Morris Nichols and Locke Lord present. The Southern Union Board obtained advice from its legal advisors regarding its response to the Second Williams Proposal, Evercore and Goldman Sachs made their presentations to the Southern Union Board as to the financing and financial aspects of the Second Williams Proposal, and the Southern Union Board and the advisors discussed whether the Second Williams Proposal was reasonably likely to result in a superior offer. The Southern Union Board unanimously determined to share information and enter into discussions with Williams as well as to attempt to meet the schedule specified in the Second Williams Proposal. Both Williams and ETE were advised of the Southern Union Board’s decision. The Southern Union Board encouraged continued communications and discussions with ETE and encouraged Mr. Herschmann to endeavor to increase the price ETE would be willing to pay.

Relying upon the confidentiality agreement entered into with Williams on June 29, 2011, Southern Union again granted access to representatives of Williams to electronic data rooms of Southern Union beginning during the late afternoon of July 14, 2011. Southern Union representatives responded to specific diligence inquiries from Williams beginning on July 15, 2011, provided comments on the proposed merger agreement included with the Second Williams Proposal to Williams on July 15, 2011 and offered to meet with Williams’ representatives beginning on July 15, 2011. Williams informed Southern Union that meetings would begin on July 16, 2011, and Southern Union then arranged for personal meetings with representatives of Williams to address diligence inquiries on July 16, 2011 and July 17, 2011.

On July 15, 2011, Southern Union engaged in discussions with representatives of ETE regarding potential improvements to the terms of the first amended and restated merger agreement, and from July 15, 2011 through July 18, 2011, Mr. Herschmann engaged in discussions with representatives of ETE concerning economic enhancements for a potential additional ETE proposal.

On July 16, 2011, Mr. Herschmann advised Mr. Armstrong that Southern Union was encouraging ETE to make an offer superior to the Second Williams Proposal. Mr. Armstrong indicated that he understood.

The Southern Union Board met during the afternoon of July 18, 2011 to review the status of diligence and discussions with Williams, as well as the status of the continued discussions with ETE. Mr. Herschmann shared with the Southern Union Board that Williams had requested additional diligence information to be furnished to Williams the next day and that Williams did not seem likely to be ready to finalize a definitive agreement by its proposed July 19, 2011 deadline. He stated that while ETE had not proposed an increased price at that time, further negotiations with ETE could be productive. Mr. Herschmann advised the Southern Union Board that the representatives of ETE had made it clear that ETE would only make an offer prior to Southern Union and Williams reaching an agreement if Southern Union agreed not to give Williams notice of the existence or terms of any proposed ETE offer. Mr. Herschmann also advised the Southern Union Board that ETE had indicated that it also might condition any higher bid on receipt of a substantially larger termination fee if Southern Union subsequently agreed to merge with Williams or another party, which substantially higher termination fee Mr. Herschmann reported that he had resisted. The Southern Union Board discussed the effect of the prohibition on contacting Williams to obtain a binding bid from Williams, the extent of the incremental termination fees that would be payable to ETE (which the Southern Union Board agreed with Mr. Herschmann should not be more than proportionate to any price increase) and their effect on Williams’ ability to submit another, higher proposal. The Southern Union Board also noted that Mr. Herschmann had advised Mr. Armstrong that Southern Union intended to encourage ETE to make an offer superior to the Second Williams Proposal. The Southern Union Board gave Mr. Herschmann continued authority to continue to negotiate with ETE, as well as authority to inform Mr. Warren of ETE that, subject to the Southern Union Board’s receiving fairness opinions from its financial advisors, the Southern Union Board likely would promptly accept any binding offer higher than $44 per share from any party that made it.

Late in the day on July 18, 2011, Williams furnished a revised draft of its proposed merger agreement to Southern Union, having accepted a limited number of Southern Union’s requests to improve the terms of the

 

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first amended and restated merger agreement. That same afternoon, Williams also submitted a further list of focused due diligence questions to Southern Union. On the evening of July 18, 2011, a representative of Sullivan & Cromwell advised a representative of Williams’ outside counsel that Williams should be mindful of the manner in which ETE had increased its bid in the past, not assume that Southern Union would be able to contact Williams upon receiving a revised proposal from ETE and move as expeditiously as they could to submit a binding proposal to Southern Union. During that evening, Mr. Herschmann and Mr. Armstrong spoke again. Mr. Armstrong thanked Southern Union for its cooperation and responsiveness. He also advised Mr. Herschmann that Williams was continuing its analysis of the diligence, that the July 19, 2011 deadline was not critical to Williams, and that Williams’ time deadline most likely would slip. Mr. Armstrong stated that the Williams board of directors (the “Williams Board”) would consider at its meeting the next day material issues and changes identified during due diligence that he indicated Williams was coming to better understand but that had been identified after the Williams Board had authorized the Second Williams Proposal. He stated that he would inform Southern Union of the decision of the Williams Board.

Later that same evening, ETE furnished a revised draft of its proposed second amendment and restatement of its merger agreement for the potential additional ETE proposal, having accepted most of Southern Union’s requests. Representatives of Southern Union and ETE negotiated the terms of the merger agreement that night with the expectation that, should ETE receive acceptable responses from rating agencies the next morning, ETE would increase the cash consideration portion of its offer to $44.25 per share, with the exchange ratio of Southern Union common stock into ETE common units to be enhanced to a one-for-one exchange.

The Southern Union Board and the Southern Union Special Committee met at 7:30 a.m. Eastern Time on July 19, 2011 to discuss the potential additional ETE proposal. Representatives of Evercore, Goldman Sachs, Sullivan & Cromwell, Morris Nichols and Locke Lord were present. The Southern Union Board first requested to be updated on the status of discussions with Williams, and Mr. Glendenning of Locke Lord expressed the view, shared by the representatives of Sullivan & Cromwell and Morris Nichols, that while the draft merger agreement received the previous evening from Williams contained limited improvements, in the view of the counsel to Southern Union and the Southern Union Special Committee, it was more of a placeholder for further negotiations and did not indicate, one way or another, whether Williams was seeking to complete a transaction that day, presented many more issues than the ETE draft agreement, and provided less certainty as to closing. Mr. Herschmann reported that while Mr. Armstrong had been complimentary of Southern Union’s representatives for their responsiveness in the diligence process, Mr. Armstrong had indicated that the Williams Board would meet later that day and hoped to be able to advise Southern Union of the Williams Board’s decision. Mr. Herschmann reported that Mr. Armstrong had stated that the Tuesday, July 19, 2011 deadline was not essential to Williams. Mr. Herschmann noted that, in light of Mr. Armstrong’s statement, he felt it was unlikely that Williams would be in a position to reach an agreement with Southern Union that day.

Mr. Lindemann then asked Mr. Glendenning to update the Southern Union Board on discussions with ETE. Mr. Glendenning reported that an updated draft of a potential second amendment and restatement of the merger agreement with ETE had been received from ETE the preceding night and that the mechanics of the draft agreement, including the limits on the maximum percentages of cash and equity, were the same as the existing first amended and restated merger agreement. He stated that of the changes requested on behalf of Southern Union, ETE had accepted most of the requests, and discussed each change with the Southern Union Board. Mr. Glendenning also shared that a change requested by ETE was that the drop down of Southern Union’s interest in Citrus Corp. to ETP, previously anticipated to occur after the closing of the merger, occur in the form of a merger transaction immediately prior to the closing of the merger, with the proceeds to be used by ETE to help finance the higher price per share to be offered by ETE. Under ETE’s proposal, provided that Southern Union remained in compliance with its commitments pursuant to the merger agreement, neither the consummation of the Citrus Corp. merger nor ETP’s willingness to consummate it, would be a condition to the closing.

Mr. Herschmann then addressed the financial aspects of the potential additional ETE proposal (the “Second Amended ETE Proposal”). He stated that ETE now was proposing a price of $44.25 per share in cash or an

 

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exchange of one Southern Union share for one ETE common unit at the election of each Southern Union stockholder (with such election to be subject to proration as discussed above), subject to satisfactory determinations by the rating agencies and the finalization of the revised drop down merger transaction related to Southern Union’s interest in Citrus Corp. and ETP as discussed above, both of which were anticipated to be received that morning. He further indicated that, after consultation with Southern Union’s advisors, the proposed increase in the breakup fee was proportional to the increase in the purchase price. The Southern Union Board and advisors discussed the extent to which this would impose an incremental hurdle on Williams or another potential bidder and the benefits of locking in a higher price.

Mr. Lindemann then asked Evercore and Goldman Sachs whether, based on their work to date and any additional work needed, each would be in a position to analyze the Second Amended ETE Proposal and potentially render a fairness opinion that morning if they found the Second Amended ETE Proposal fair to Southern Union’s stockholders from a financial point of view. Both Evercore and Goldman Sachs said that they could do so.

The Southern Union Special Committee then met alone with its advisors and after deliberations, unanimously and conditionally approved the potential Second Amended ETE Proposal, and recommended such approval by the full Southern Union Board, subject to receipt by ETE of acceptable determinations of the rating agencies, the receipt of a final offer from ETE consistent with the Second Amended ETE Proposal by ETE, and the receipt by the Southern Union Special Committee of fairness opinions from Evercore and Goldman Sachs. The full Southern Union Board then met and unanimously adopted the same conditional approval of the potential Second Amended ETE Proposal. Included in the analysis of the directors in consultation with the financial advisors to the Southern Union Special Committee was the judgment that the Second Amended ETE Proposal was superior to the merger agreement with ETE as amended on July 4, which the directors had determined at that time was superior to the original June 15 merger agreement, which had as the consideration to Southern Union’s stockholders the Series B Units of ETE. The Southern Union Board ended this portion of its meeting prior to 9:30 a.m. Eastern Time.

The Southern Union Board and the legal and financial advisors to the Southern Union Special Committee and Southern Union reconvened at 10:50 a.m. Eastern Time. At that time, ETE was still awaiting final responses from the rating agencies, and Mr. Herschmann advised that the cap on expense reimbursement then being requested by ETE was higher than would be justified as proportional to the increase in price, and additional cost that was likely incurred since the execution of the first amended and restated merger agreement, and that he was negotiating with ETE for a reduction in its request. During the Southern Union Board meeting, Mr. Herschmann corresponded with ETE representatives periodically, and he advised the Southern Union Board during the meeting that ETE had received the requisite responses from the ratings agencies and had reduced its proposed cap on expenses.

Evercore and Goldman Sachs then delivered their fairness opinions. The Southern Union Special Committee first met separately with its financial and legal advisors and resolved unanimously to recommend to the full Southern Union Board approval of the second amended and restated merger agreement (the “Second Amended and Restated ETE Merger Agreement”). The full Southern Union Board then met and approved unanimously the Second Amended and Restated ETE Merger Agreement.

On August 16, 2011, Williams sent a letter to Southern Union reasserting its unsolicited proposal for the purchase of all of the issued and outstanding shares of common stock of Southern Union at a purchase price of $44 per share in cash (the “Reasserted Williams Proposal