Williams Companies made an unsolicited $4.9 billion cash bid for Southern Union in an attempt to top the pipeline company's $4.1 billion stock deal with rival Energy Transfer Equity LP announced last week.
Williams said Thursday it proposed buying Southern Union for $39 a share, an 18 percent premium to Energy Transfer's $33 a share bid.
Southern Union soared in after-hours trading while both Williams and Energy Transfer fell.
Williams said the proposed deal would have no impact on the timing of its planned separation of its exploration and production business.
Williams Chief Executive Alan Armstrong said in an interview that the deal would help position the company "between the shale basins and where we think the demand for natural gas will be created. Because (natural gas) is low priced and abundant, a lot of this infrastructure is well positioned to serve that need."
Armstrong said the deal would generate $50 million in annual cost savings and would immediately increase cash flow that could be used to support Williams' dividends.
Southern Union owns and runs more than 20,000 miles of pipelines in the Southeast, Midwest and Great Lakes regions as well as Texas and New Mexico. It also owns local gas distribution companies that serve more than half a million end-users in Missouri and Massachusetts.
Despite weak natural gas prices, production has been rising as energy companies pile into shale fields — underground rock formations rich in oil and gas.
Increased production from shales such as the Marcellus in the eastern United States has also benefited companies transporting and processing natural gas, like Williams, Southern Union and Energy Transfer.
Armstrong said he had met with Southern Union Chief Executive George Lindemann and Chief Operating Officer Eric Herschmann within the last year to discuss a possible combination.
"We discussed our interest and what we thought the strength of the combined company would be and put a value on the table. We did not hear back an affirmative response from them," he said. "We certainly expect to hear an affirmative response back from them with this very compelling offer."
Williams' bid depends on Southern Union terminating its deal with Energy Transfer by a 40-day deadline set in their merger agreement. If Southern Union ends the deal by that date it would be required to pay a lower break-up fee than if it killed the deal later.
Energy Transfer announced its agreement to buy Southern Union on June 16, saying it would pay around $4.1 billion series B units for the company. ETE was not immediately available for comment.
In addition to the equity value, Southern Union has around $3.7 billion in debt that either company would need to take on in a deal.
Williams also said the proposed deal would have no impact on the timing of its planned spinoff and IPO of its exploration and production business, WPX Energy.
Barclays and Citi are advising Williams on its bid.
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