Shares of Houston-based natural gas company Southern Union (NYSE:SUG) have flared up — since June 15, the stock has surged more than 40% to $40.
The company is burning hot due to takeover interest from two competing natural gas operators: Energy Transfer Partners (NYSE:ETP) and Williams Cos. (NYSE:WMB). Both are interested in Southern Union’s 20,000 miles of natural gas pipelines, which run across the most populous parts of the southeastern U.S., from Florida to Louisiana.
Ownership of Southern Union’s pipeline network would vastly increase Energy Transfer’s and Williams’ distribution capacity, turning either company into the largest U.S. natural gas pipeline operator.
Anxious to gain national dominance, Energy Transfer – already one of the fastest growing U.S. natural gas transport companies – initially bid on Southern Union in mid-June. Energy Transfer offered a $4.2 billion all-stock deal, worth $33 a share.
At first, the bid looked promising.
However, realizing what was at stake, Williams – which currently delivers about 12% of the country’s daily gas supply – upped the ante. In response, Williams offered Southern Union $4.9 billion in cash, or about $39 a share.
So far, Southern Union hasn’t formally agreed to either deal. The well-positioned natural gas operator seems to be holding out and waiting for more, and, so the bidding war continues, driving Southern Union’s stock higher.
As shown on the six-month daily chart below, SUG was trodding along for the better part of this year. The stock appeared to be caught in a narrow trading band, consolidating between support around $27 and resistance near $30.
However, buying interest from Energy Transfer spiked the stock, causing it to surge over $5, to a 52-week high, around $34. This trading activity resulted in a bullish technical formation known as a breakaway gap.
Following news of the Williams counterbid, the stock formed a second, consecutive breakaway gap on high volume. Shares briefly touched an all-time high of $41.68. The stock has been trading around this level since.
When breakaway gaps complete a price pattern, such as consolidation, they typically indicate a powerful bullish trading opportunity. The breakaway gap is particularly powerful if it occurs on high volume, as it did in this case.
Because shares of SUG are currently trading near their all-time high, there is little historical resistance in sight, meaning the stock could continue much higher.
Also contributing to the Southern Union’s attractiveness is its fundamental outlook. Although natural gas prices have been extremely volatile, recent shale discoveries, in places like Texas and Louisiana, have created heightened demand for pipeline transport.
As a result, Southern Union’s full-year 2011 results look promising. Additionally, the stock offers investor’s an annual dividend of about 1.5%.
With the stock’s strong technical and fundamental outlook, Southern Union is an attractive potential buy for any investor’s portfolio.
