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Morgan Stanley Infrastructure – the infrastructure investment division of Morgan Stanley Investment Management (MSIM), a wing of Morgan Stanley (MS - Analyst Report) – declared that it has increased its ownership stake in Southern Star Central Corp. – the parent company of Southern Star Central Gas Pipeline (Southern Star) – to 100%.

Southern Star received an undisclosed amount of Morgan Stanley’s preferred stock for this transaction. The other financial details of the transaction were not divulged by any of the parties involved.

Morgan Stanley Infrastructure is a $4 billion global infrastructure fund. Earlier in March 2010, it attained a 40% economic stake as well as 50% governance rights in Southern Star.

Management at Morgan Stanley Infrastructure believes that since investment prospects in the natural gas pipeline sector in the U.S. are limited, they are thrilled to obtain full ownership in a regulated core infrastructure asset.

Further, in collaboration with management at Southern Star, they had devised a tactical agenda for realization of capital expenditure and further expansion. Also, with the aforementioned deal they are aiming to expand their business, besides offering first-rate service to consumers.  

In the last two years, Southern Star has completed many expansion programs and has many in the pipeline. Further, among other initiatives it has also spent a significant amount of capital for greater maintenance, enhancement of public safety and for evaluating and reducing pipeline risks.

Southern Star is the chief transmitter of gas and a natural gas storage facility provider to several key U.S. Midwest cities. It serves metropolitan areas in Missouri, Kansas and Oklahoma and gets gas supplies from major producing regions, including the Hugoton, Anadarko and Rocky Mountain basins. The system has 23 interconnections with other key interstate and intrastate pipelines, allowing consumers to source from additional producing basins, including the San Juan and Permian basins.

Southern Star believes that the partnership with Morgan Stanley infrastructure has been instrumental in developing potential and in incorporating developments in its system. With the closure of the deal, consumers could expect better and more flexible services.

We expect this deal to help Morgan Stanley to augment its revenue to some extent.

Morgan Stanley currently retains a Zacks #3 Rank, which translates into a short-term Buy rating. Considering the fundamentals, we maintain our long-term Neutral recommendation on the stock. In the U.S. market, Morgan Stanley’s peers are International Assets Holding Corporation and Goldman Sachs Group Inc. (GS - Analyst Report).

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