INSIDE TRACK: Energy Transfer Equity Chairman Buys Up More Units
July 14 2011 - 8:59AM
Dow Jones News
Kelcy Warren, the chairman of Energy Transfer Equity LP (ETE),
is so confident in his company's prospects that he has almost all
of his net worth invested in its units.
Last week, Warren spent another $31.6 million to buy 750,000 ETE
units, bringing his ownership stake in the Dallas-based limited
partnership to just under 20% worth nearly $2 billion. ETE owns two
other public partnerships that process and distribute natural
gas.
So far, Warren's investment, made at an average purchase price
of $42.18 per unit, has looked savvy. Since completing his
purchase, ETE units have risen 6.2%.
On Wednesday, ETE fell 13 cents, or 0.29%, to $44.78 each.
Warren's purchases come as ETE maneuvers to buy Southern Union
Co. (SUG), a competitor that agreed last week to ETE's sweetened,
cash-and-unit deal that valued Southern Union at $40 per share.
ETE's offer values Southern Union at nearly $9 billion on an
enterprise basis, a measure that combines equity and debt. A rival
suitor Williams Cos. (WMB), which earlier offered $39 a share in
cash, is expected to counter with a new bid.
A spokesman for Williams declined to comment on whether Williams
would raise its offer, saying only that the company is exploring
its options.
Getting the deal done will add to ETE's capacity, allowing it to
participate in an expected boom in natural-gas usage. Even if the
deal isn't successful, ETE will likely benefit as the U.S.
increasingly turns to natural gas for electricity generation. As
demand for natural gas rises, companies that serve the industry,
like ETE, are likely to benefit.
Five of seven analysts tracked by FactSet research rate ETE buy
or overweight, while two rate the units at hold. The average price
target on ETE is $48.67, a roughly 8.7% premium to recent ETE
prices. The units, which went public at $21 each in early 2006, hit
an all-time high of $47.34 apiece last month, after recovering from
an all-time low of $14.92 near the end of 2008.
Warren says his ETE purchases, which were disclosed in
regulatory filings, are only tangentially related to the Southern
Union deal. He says the proposed acquisition, which has been
complicated by the back-and-forth with Williams, caused his
company's units to trade "on the noise," rather than the
fundamentals.
In an interview arranged by the company, Warren noted that he
has bought significant blocks of ETE in the past. He says he only
buys when he gets the approval of his general counsel--which isn't
often given the strict requirements for when insiders can buy and
sell--and that he's staying in ETE for the long haul.
"I can't think of a better place to put my money," Warren, 55
years old, told Dow Jones Newswires. He praised ETE's "nice yield,"
currently around 5.6% annually, and ETE's potential for growth with
or without Southern Union. He added that he'll "never sell" any of
his ETE stake.
Warren's holdings generate a payout--a distribution similar to a
dividend--of more than $100 million a year at current distribution
levels, which can vary with the partnership's earnings.
ETE owns the general partners of Energy Transfer Partners LP
(ETP) and Regency Energy Partners LP (RGNC). Partnerships like
these are formed to limit or eliminate federal and state tax
burdens, instead paying out most or all of their profits to the
unit-holders and partners, who in turn pay taxes on those
distributions.
Units are akin to common stock, but carry different tax
responsibilities and voting rights as defined under the issuing
partnership.
-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171;
maxwell.murphy@dowjones.com
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