Regency Energy Partners LP has announced it will acquire Southern Union Gathering Company LLC, the owner of Southern Union Gas Services Ltd., from Southern Union Company, a jointly owned affiliate of Energy Transfer Equity LP and Energy Transfer Partners LP. The $1.5 billion acquisition will expand Regency’s presence in the Permian Basin. The acquisition is expected to close in the second quarter of 2013, subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions.

The transaction will include the purchase of a 5,600-mile gathering system and approximately 500 million cubic feet (MMcf) per day of processing and treating facilities in west Texas and New Mexico for natural gas and natural gas liquids. In addition, SUGS is currently finishing construction of the 200 MMcf per day Red Bluff processing plant with associated treating which is expected to be in service in the second quarter of 2013. An additional 200 MMcf per day cryogenic processing facility with associated treating is in the planning stages and is expected to be in service in mid-to-late 2014.

“This acquisition represents a significant growth opportunity for Regency and is very strategic to our plans for expansion in the Permian Basin,” Mike Bradley, president and chief executive of Regency Energy Partners, said in a release. “The integration of the SUGS assets with our existing operations will position Regency with a broad Permian Basin gathering and processing footprint. The combined system is expected to provide significant synergies, increase efficiencies on our current system, improve the flexibility of our gathering and processing operations and enhance services for our customers.”

Regency will finance the acquisition by issuing $900 million of new Regency units to Southern Union Company, comprised of $750 million of new common units and $150 million of new Class F common units. The Class F common units will be equivalent to common units except will not receive distributions for the equivalent of eight consecutive quarters post-closing. The remaining $600 million will be paid in cash funded from long-term borrowings.

In addition, in conjunction with the transaction, ETE, which owns the general partner and incentive distribution rights of Regency, has agreed to forgo the incentive distribution rights payments associated with the new common units issued by Regency for the equivalent of eight consecutive quarters post-closing and to eliminate the $10 million annual management fee due from Regency for two years post-closing.

J.P. Morgan acted as sole financial advisor and Locke Lord LLP acted as legal counsel to Regency with respect to the transaction. Evercore Partners acted as sole financial advisor and Akin Gump Strauss Hauer & Feld LLP acted as legal counsel to Regency’s Conflicts Committee with respect to the transaction.