El Paso Energy Corporation and Sonat Inc. Announce Merger Agreement

abarrelfullabarrelfull wrote on 26 May 2015 07:59
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March 15th 1999

El Paso Energy Corporation (NYSE: EPG) and Sonat Inc. (NYSE: SNT) announced today the execution of definitive agreements for the merger of El Paso Energy and Sonat. The total value of the transaction is approximately $6 billion, including $2 billion of assumed Sonat debt. In the merger, each Sonat share will be converted into one share of El Paso Energy common stock. It is expected that the merger will be completed
during the third or fourth quarter of 1999. The total enterprise value of the combined company, based on El Paso's closing price on Friday, would exceed $14 billion.

"The merger between El Paso and Sonat will create the preeminent natural gas company in North America. The combined company will rank among the leaders in all key sectors of our industry including interstate transmission, intrastate transmission, gas gathering and processing, energy marketing and power development," said William A. Wise, chairman, president and chief executive officer of El Paso Energy. "Our combined interstate transmission systems alone will consist of an impressive 40,000 miles of pipeline reaching all the major growth areas in the country and moving more gas than any other U.S. company — nearly a quarter of all the natural gas transported in the U.S. every day.

"Both El Paso and Sonat are dynamic organizations that complement each other operationally and geographically. Our merged interstate pipeline systems will stretch from Bakersfield to Birmingham and Brownsville to Boston. They will tap the most prolific supply basins in North America and access the
largest and fastest growing natural gas markets in the United States, including Florida and other key southeastern states. New gas-fueled power generation development is particularly active in these areas. Our ability to access these new markets will further diversify our market base and allow us to employ our combined expertise in energy marketing and power generation.

"The transaction will also provide exciting opportunities for our El Paso Field Services business unit. Sonat Exploration has a substantial oil and gas exploration and production base that spans the southern United States from Texas to Alabama, including an important presence in the Gulf of Mexico. Our onshore gathering and processing facilities and Leviathan Gas Pipeline's offshore gathering operations will provide Sonat Exploration's existing 1.6 trillion cubic feet of natural gas equivalent reserves access to burgeoning power generation markets and the best interstate pipeline network in the U.S.

"This merger is consistent with our ongoing strategy of maintaining future growth through seeking significant acquisitions and mergers within our industry. Three years ago we purchased Tenneco Energy in what has come to be regarded as the most successful merger within the pipeline industry. We expect to realize similar benefits from the combination with Sonat. The merger will be earnings and cash flow accretive in the year 2000, the first full year of operations, and beyond," Mr. Wise added.

Ronald L. Kuehn, Jr., chairman, president and chief executive officer of Sonat said, "This is clearly an excellent transaction for our shareholders and customers. We are creating a company with exceptional natural gas and electric opportunities across the United States and literally around the world."

The combined company will retain the El Paso Energy name and be headquartered in Houston, Texas. Sonat is currently headquartered in Birmingham, Alabama, and the headquarters of Sonat's interstate pipeline,
Southern Natural Gas Company, will remain in Birmingham. William A. Wise, the current chairman, president and chief executive officer of El Paso Energy, will continue as president and chief executive officer of the new company.

Ronald L. Kuehn, Jr., who is currently the chairman, president, and chief executive officer of Sonat, will become the non-executive chairman of the board for the combined company until December 31, 2000. The Board of Directors for the combined company will consist of 15 directors — nine who will be designated by El Paso and six who will be designated by Sonat. The merger is subject to customary conditions, including approval by the stockholders of Sonat and receipt of certain required governmental approvals.

In order to provide Sonat stockholders greater certainty that the transaction will be completed, El Paso Energy has agreed that if El Paso stockholder approval for the common issuance were not obtained, El Paso would issue 19.9 percent of its outstanding common stock as merger consideration, with the balance of the merger consideration paid in the form of non-convertible, long-term preferred stock.

The merger agreement includes customary non-solicitation, termination fee and expense reimbursement provisions. In addition, each of the companies has granted the other an option to purchase up to 19.9 percent of its outstanding common stock, exercisable if the merger is terminated under certain circumstances. Members of the Zilkha family, who own approximately 21 percent of the outstanding Sonat shares, have agreed to vote their shares in favor of the merger.

Donaldson, Lufkin and Jenrette Securities Corporation is acting as El Paso's financial advisor for the transaction, while Merrill Lynch Corporation is advisor to Sonat. The law firm of Fried, Frank, Harris, Shriver & Jacobson is El Paso's legal advisor, and Sonat is represented by the law firm of Wachtel, Lipton, Rosen & Katz.

With over $10 billion in assets, El Paso Energy Corporation provides energy solutions through five business units: Tennessee Gas Pipeline Company, El Paso Natural Gas Company, El Paso Field Services Company, El Paso Energy Marketing Company, and El Paso Energy International Company. The company owns the nation's only integrated coast-to-coast natural gas pipeline system and has operations in natural gas transmission, gas gathering and processing, energy marketing, power generation and international energy infrastructure development. Visit El Paso Energy's web site at www.epenergy.com.

Sonat Inc., headquartered in Birmingham, is a diversified energy company engaged in exploration and production of oil and natural gas, interstate transmission of natural gas, and energy services. Visit Sonat's web site at www.sonat.com.

Sonat's Assets:

  1. Florida Gas Transmission Pipeline
  2. Wyoming Interstate Gas Pipeline
  • [ El Paso Energy Corporation and Sonat Inc. Announce Merger Agreement]

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