Southern Union operates natural gas industry pipeline and storage facilities and regulated utilities in Massachusetts and Missouri. The merger received shareholder approvals in December and was cleared by the Federal Energy Regulatory Commission and antitrust regulators. Earlier this month, a bond deal was priced related to the purchase of Southern's interest in a Florida gas pipeline.

Approval by the Missouri Public Service Commission is still required for the deal to conclude. A decision from the MPSC regarding Southern's Missouri Gas Energy utility was expected Jan. 6, but that schedule slipped. The commission subsequently ordered the staff to make a recommendation either on the merger or on extended hearings by Wednesday. On Jan. 13 the parties agreed to push that recommendation deadline to Feb. 3.

The companies and the MPSC staff have been in a negotiation over the terms of an agreement that would allow the deal to proceed. The continued extensions are apparently a sign that a settlement remains possible.

The deal spread Wednesday, with Southern shares trading for $43.17 and Energy Transfer units at $42.36, was about 32 cents, or 0.7%. If the merger closed Feb. 29, the spread implied an annualized return of 6.4%.

The Feb. 3 deadline will determine if a stipulation has been reached or if they remain at an impasse and the matter will go to an extended hearing schedule that was defined by the commission in an order earlier this month. Under that scenario, the Missouri approval process could be pushed into the second quarter.

Neither Energy Transfer nor Southern returned calls. The companies have anticipated that the deal would close in the first quarter.

The merger agreement can be extended by either Energy Transfer or Southern to the end of 2012 to gain the regulatory approvals.

The terms of the deal complicate the spread. Southern shares are exchanged for cash and stock and the cash component of the deal is capped at 60% of the total transaction, while the stock portion of the consideration can fluctuate between 40% and 50% of the total consideration. Energy Transfer shares have traded up in recent days but have averaged well below the $44.25 cash deal value, so at present most shareholders would opt for cash and the proration should approximate the 60-40 cash-stock split. But if the MPSC review drags on, that cash-and-stock ratio could change.