MDU Resources Group Inc. has agreed to acquire Intermountain Gas Co. from privately held Intermountain Industries Inc. in a cash-for-stock transaction. The acquisition grows MDU's utility customer base to more than 900,000.
Intermountain Gas, headquartered in Boise, ID, serves more than 300,000 customers in 74 communities in Idaho, including the Boise metropolitan area, Twin Falls, Sun Valley, Pocatello and Idaho Falls. It was founded in 1955 and employs 332 people. The enterprise value of the transaction, including indebtedness, is approximately $328 million. MDU said it expects to finance the deal with the issuance of a combination of long-term debt and equity.
"Intermountain's service territory and their employee expertise and culture is a great long-term strategic fit within our existing regulated operations area, which stretches from Minnesota to the Pacific Northwest," said MDU CEO Terry D. Hildestad. "Consistent with our long-term objective of growing our regulated utility as part of our overall business portfolio, Intermountain operates in a high-growth area with recent customer growth of approximately 4.5% annually. In total, after closing, our utility customer base will exceed 930,000 customers."
During a conference call with financial analysts, MDU executives said Intermountain's rate base is about $180 million and no rate case was expected in the near term. They said they expect the deal to be neutral to earnings per share in the first year after completion. The company expects to issue equity of up to $150 million depending on need some time in the second half of the year, they said.
The completion of the acquisition is expected in the fourth quarter and is subject to various regulatory reviews, as well as clearance under the Hart-Scott-Rodino Act. When the transaction is completed, Intermountain will become an indirect wholly owned subsidiary of MDU Resources, continuing to operate as Intermountain Gas Co. Intermountain will join Montana-Dakota Utilities Co., Great Plains Natural Gas Co. and Cascade Natural Gas Corp. as MDU Resources utility business units. The utility segment currently serves approximately 510,000 natural gas customers in North Dakota, Minnesota, Montana, Oregon, South Dakota, Washington and Wyoming, as well as nearly 121,000 electric customers in North Dakota, Montana, South Dakota and Wyoming.
MDU acquired Cascade one year ago (see NGI, July 9, 2007). "The Cascade integration has gone very well, exceeding our expectations," Hildestad told analysts last week.
Last week MDU subsidiary Williston Basin Interstate Pipeline Co. said it would expand its Grasslands Pipeline by up to 40 MMcf/d (see related story).
Fitch Ratings, which rates MDU and Intermountain "A-," said the deal is not expected to affect MDU's ratings or stable rating outlook. "Regulated utility businesses typically are capitalized with approximately 50% debt-50% equity, while MDU's consolidated debt levels are anticipated to not exceed 40% of the total capital structure. MDU's recent financial performance has been strong, driven by robust energy prices in particular," Fitch said.
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