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Southern Union Company – subsidiary of Energy Transfer Partners, L.P. (ETP - Analyst Report) and Energy Transfer Equity, L.P. (ETE - Snapshot Report) – has entered into an agreement to sell its Southern Union Gathering Company, LLC to Regency Energy Partners LP (RGP - Snapshot Report). The divestiture will fetch Southern Union $1.5 billion.

Per the deal, Regency Energy will have the ownership of the 5,600-mile gathering system in West Texas and New Mexico, and 500 million cubic feet per day of processing and treating facilities. Southern Union will receive the deal price in 3 parts – $750 million of newly issued Regency common units, $150 million of new Class F units, and $600 million in cash.

Energy Transfer Equity will give up all incentive distribution right (IDR) payments from Regency on its newly issued units for the first 8 successive quarters after the closure of the transaction. Energy Transfer Partners will also forego the $10 million yearly management fee paid by Regency for the same time phase. Additionally, the Class F units will not receive any cash distribution for the same 8 quarters.

It is expected that the deal will close in the second quarter of 2013 after getting an approval under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions.

We believe that this deal will help Energy Transfer to simplify and optimize its asset mix.

Earlier this month, Energy Transfer Partners posted strong fourth quarter results with a profit of 62 cents per limited partner unit. The performance was aided by a robust performance by the Interstate Transportation and Storage business unit along with investments in Sunoco Logistics Partners L.P. (SXL - Analyst Report).

Both, Energy Transfer Partners and Energy Transfer Equity currently retain a Zacks Rank #3 (Hold), implying an in line performance with the broader U.S. equity market over the next 1 to 3 months.

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