Energy Transfer Equity LP said that it will acquire smaller rival Southern Union Co for about $4.1 billion to become the largest natural gas pipeline company in the US and a $40 billion group of natural gas midstream company.

The deal will see Dallas-based Energy Transfer nearly double its capacity through what is billed as the largest buyout of a pipeline company this year.
 
The deal will also see billionaire investor Carl Icahn's stake in Southern Union rise to $6.1 million, netting him a a windfall profit of $1.7 million from the stake he had bought in March 2011.

Under the deal announced yesterday, Houston-based Southern Union will get new units worth $33 each or approximately $4.2 billion, representing a 17 per cent premium to yesterday's closing price. 

Energy Transfer will also will assume Southern Union's debt of $3.7 billion.

Southern Union is one of the nation's leading diversified natural gas companies, engaged primarily in the transportation, storage, gathering, processing and distribution of natural gas.
 
The company owns and operates one of the nation's largest natural gas pipeline systems with more than 20,000 miles of pipelines and one of North America's largest liquefied natural gas import terminals, serving more than half a million natural gas end-user customers in Missouri and Massachusetts.

The acquisition of Southern Union, one of the leading diversified natural gas companies in the US, will give Energy Transfer with direct ownership of assets that are complementary to the assets owned and operated by its own two master limited partnership subsidiaries, Energy Transfer Partners and Regency Energy Partners.

The combined footprint of both pipeline operator's will include more than 44,000 miles of natural gas pipelines and approximately 30.7 billion cubic feet per day of natural gas transportation capacity, which is nearly half of the natural gas produced in the US, making Energy Transfer among the largest natural gas infrastructure players in the country.

Energy Transfer said that it has identified approximately $100 million in commercial and operational synergies and an additional $25 million in one-time savings.

Energy Transfer owns and operates a diversified portfolio of energy assets. It has pipeline operations in Arizona, Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Utah and West Virginia and owns the largest intrastate pipeline system in Texas.

The company 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. It also holds a 70 per cent interest in a joint venture that owns and operates natural gas liquids storage, fractionation and transportation assets in Texas, Louisiana and Mississippi.

"The acquisition of Southern Union will give Energy Transfer a larger, more competitive interstate and midstream platform and will add significant demand-driven pipeline assets to the Energy Transfer portfolio," said Kelcy Warren, Energy Transfer's chairman.

''Under our management, we have grown Southern Union from a value of approximately $125 million to approximately $8 billion. The combination with Energy Transfer is the right next step for the company's growth and delivers significant value for our shareholders,'' said George Lindemann, chairman and CEO of Southern Union. 

The transaction is expected to close in the first quarter of 2012, and post closing Southern Union will become a wholly-owned subsidiary of Energy Transfer.