Pipeline operator Energy Transfer (ETE) swooped in on Thursday to buy Southern Union (SUG) for $4.11 billion, placing a 17% premium on the smaller rival.

The transaction, which also includes about $3.7 billion of Southern Union debt, will create the largest consolidated natural gas pipeline company in the U.S. The combined entity will have more than 44,000 miles of pipelines and 30.7 billion cubic feet per day of natural gas transportation capacity.

Southern Union will become a wholly-owned subsidiary of Energy Transfer, which is based in Dallas.

The acquisition of Southern Union will give ETE a larger, more competitive interstate and midstream platform and will add significant demand-driven pipeline assets to the Energy Transfer portfolio, Energy Transfer CEO Kelcy Warren said in a statement.

Energy Transfer agreed to pay $33 a share for Houston-based Southern Union, representing a 17% premium above the companys Thursday closing price of $28.26. Shareholders quickly bid Southern Unions stock 16.77% higher to $33.00.

Under the terms of the deal, Southern Union shareholders would exchange their common shares for newly-issued Series B units of Energy Transfer.

We are thrilled with the opportunities the transaction with Energy Transfer creates, said Southern Union CEO George Lindemann. We have a shared vision for our companies. Our businesses and networks are highly complementary and together will provide a broader range of services and product offerings to existing and future customers.

Energy Transfer said it has found about $100 million in commercial and operational synergies, as well as $25 million in one-time savings.

The companies said they anticipate the transaction closing in the first quarter of 2012.

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