SUG Southern Union Company Common Stock

Energy Transfer Partners L.P. (ETP) completed the divesture of its propane business to retail propane distributor AmeriGas Partners L.P. (APU). The announcement of the sale was made in October, 2011.

Per the terms of the agreement, EnergyTransfer Partners received total proceeds of $1.46 billion in cash and nearly $1.32 billion of AmeriGascommon units. Additionally, AmeriGas will also assume $71 million of existing debt in Energy Transfer’s two propane units.

With this deal, Energy Transfer will control about 34% of the common units of AmeriGas Partners, which it has committed to retain until at least 2013.

The properties that were sold include Energy Transfer Partners' propane operations in 41 states. These comprise Heritage Operating, L.P. and Titan Energy Partners, L.P., collectively known as Heritage Propane.

Energy Transfer has been considering the idea to sell off its propane business for quite some time as it wants to concentrate on its key business –– the pipeline sector. The sale proceeds will be used by Energy Transfer Equity L.P. (ETE) –– the general partner for Energy Transfer –– to buy Southern Union Co. (SUG) for $9.4 billion.

Dallas, Texas-based Energy Transfer Partners remains a premier master limited partnership with strategically positioned assets that serve major North American natural gas-producing basins.

We like the partnership’s robust organic growth profile, stable fee-based operating income and strong liquidity position. Moreover, Energy Transfer Partners is well positioned to compete in natural gas midstream and transportation & storage businesses with its geographically broad asset mix.

However, the lingering effects of the weak natural gas market will likely dilute the growth prospects of the rapidly expanding natural gas liquids business of Energy Transfer Partners. The uncertain macro environment and cost overruns on expansion projects also are major areas of concern.

We maintain our long-term Neutral recommendation on the stock, which also holds a Zacks #3 Rank (short-term Hold rating).

 
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