Star Gas Concludes That Soros Group Recapitalization Proposal is Not Superior to Kestrel Transaction

Business Wire, Feb 24, 2006

STAMFORD, Conn. -- Star Gas Partners, L.P. (the "Partnership" or "Star") (NYSE:SGU, SGH) announced today that the board of directors of Star Gas, LLC, its general partner, has determined that the Soros Group's proposal to recapitalize the Partnership is not a "Superior Proposal" under the terms of the Unit Purchase Agreement previously entered into with Kestrel Energy Partners, LLC ("Kestrel").

As previously announced, on February 15, 2006, a consortium consisting of Soros Fund Management, LLC ("Soros"), Atticus Capital LP ("Atticus") and Almeida Oil Co., Inc. ("Almeida") submitted an unsolicited proposal for the recapitalization of Star. The Soros Group proposal contemplates a similar structure to the recapitalization which the Partnership entered into on December 5, 2005 with Kestrel, except the Soros Group proposal contemplates the rights offering to common unitholders be made at $2.60 instead of $2.00 per unit and that Soros Group's equity investment would also be made at $2.60 per unit instead of $2.00 per unit as provided under the Kestrel transaction. The Soros Group Proposal would provide the Partnership with an additional $15 million of equity capital for Star before considering certain termination fee, expense reimbursement, incremental transaction expenses and interest costs which are estimated to aggregate approximately $9.5 million, resulting in additional available cash of approximately $5.5 million. The Partnership has called a special meeting of unitholders which is currently scheduled to be held on March 17, 2006 at which unitholders will vote on the Kestrel transaction.

After carefully reviewing and considering the financial terms, timing considerations, market risks and potential benefits and detriments of the Soros Group proposal, and after consulting with its financial advisors and outside legal counsel, the Board of Directors of Star Gas, LLC concluded that the Soros Group proposal was not a "Superior Proposal" under the terms of the Kestrel Unit Purchase Agreement.

The Soros Group proposal was determined not to be superior for a number of reasons. First, under the Soros proposal, existing common unitholders must pay $2.60 per unit to purchase additional units offered in the rights offering. Whereas, under the Kestrel proposal, existing common unitholders must pay $2.00 to participate. Because the dollar amount being raised in the rights offering is the same in both proposals, this means that, under the Soros Group proposal, existing common unitholders are afforded rights to purchase approximately 0.42 units for each existing common unit while the Kestrel proposal provides the right to purchase approximately 0.54 units for each existing common unit. As a result, existing unitholders' ownership would be diluted to approximately 61.4% under the Soros Group proposal compared to approximately 66.8% under Kestrel, in each case assuming the rights offering is fully subscribed by common unitholders. Second, while the Board recognized that the Soros Group proposal would provide additional equity capital to Star, after deducting the termination fee and expense reimbursement due under the Kestrel agreement (which would be required to be paid by the Partnership) and the estimated incremental transaction expenses and interest that would accrue during any period of delay on the senior notes which otherwise would have been repaid or converted to common units, the amount of additional capital provided to Star would only be approximately $5.5 million.

In comparing the two alternative transactions, the Board concluded, based on the advice of its financial advisor, that, from a financial point of view, the two proposals were in many respects substantially equivalent. While certain of the financial analyses indicated the Soros Group proposal was very slightly accretive on a pro forma total per unit basis, the additional ownership dilution to existing common unitholders outweighed any marginal benefit of such accretion. The Soros Group proposal also "assumed" that the existing transactions with Star's senior note holders would remain the same and would be an integral part of the transactions contemplated by the Soros Group proposal. However, the lockup agreements with the senior noteholders terminate upon the termination of the Kestrel agreement, and the Soros Group proposal provided no assurances that similar lockup agreements would be entered into with the Partnership's senior noteholders and that Star would be able to similarly resolve the pending dispute with its noteholders. The Board also noted that the Soros Group's proposal would require Star to obtain a new consent from the Partnership's existing secured lenders under its credit facility.

The Board also considered the impact on the Partnership's business and employees in light of the additional uncertainty about the Soros Group's proposal, the time required to consummate a transaction with the Soros Group, and the related additional uncertainty associated with the due diligence review required to be undertaken by the Soros Group, and concluded that these factors could pose additional risks to the Partnership under the Soros Group proposal. The Board also was concerned about potential conflicts of interest and potential antitrust issues under the Clayton Act presented by the Soros Group proposal which contemplates having Robert Almeida, who is affiliated with a competitor of Star, become one of the directors of the board of the new general partner of the Partnership.