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Southern Union to Merge with PA Enterprises

Southern Union to Merge with PA Enterprises

While it continues to tangle with Oneok in an effort to acquire Southwest Gas, Southern Union Co. agreed to merge with Pennsylvania Enterprises Inc. (PEI). PEI's Pennsylvania-based operations will become the fourth major autonomous division of Southern Union, complementing its Texas, Missouri and Florida operations.

The deal diversifies Southern Union's risk in areas such as weather exposure and provides the company its first entry into power marketing.

Headquartered in Wilkes-Barre, PA, PEI's primary business is gas distribution. Principal subsidiary PG Energy and PEI's Honesdale Gas Co. serve more than 153,000 gas customers in northwestern and central Pennsylvania. The company also markets electricity to more than 20,000 customers through PG Energy PowerPlus, which markets to commercial, industrial, and residential customers.

Pennsylvania Enterprises will become an autonomous division of Southern Union with the division headquarters remaining in Wilkes-Barre [PA], and there will be no material changes to the operations of PEI.

The combined company will have a market capitalization of about $1 billion and serve 1.2 million gas and electric customers in Pennsylvania, Texas, Missouri, Florida and Piedras Negras, Mexico.

Southern Union agreed to acquire PEI for about $500 million, including debt assumption. The transaction will call for each share of PEI's approximately 11 million outstanding common shares to be exchanged for $32 in Southern Union common stock (subject to adjustment for market fluctuations) and $3 cash. Based on the June 4 Southern Union closing price, PEI shareowners will receive 1.4798 shares of Southern Union for each share of PEI. The common stock portion of the transaction is expected to be tax-free to PEI's shareowners.

"The acquisition of Pennsylvania Enterprises gives Southern Union weather and economic diversification, as well as valuable expertise in the electric marketing business," said Southern Union CEO George Lindemann. "This transaction enables Southern Union to continue our active strategy for growth and provides geographic diversity with entry into the East Coast. Especially important is the electric marketing expertise that PEI's marketing division brings to Southern Union. PG Energy PowerPlus is an electric marketer that ranks 8th among the largest suppliers of electricity in Pennsylvania in terms of peak load and has an electric customer base which has doubled in the past year."

"We are extremely pleased about this strategic relationship with Southern Union. It strengthens PEI's ability to attain the critical mass needed to effectively compete in today's energy markets," said PEI CEO Thomas F. Karam. "This merger will retain PEI's Pennsylvania presence, with no material change to our operations, since we will operate as an autonomous division of Southern Union. Our shareowners will have an interest in an international energy company with a demonstrated track record for growth and shareowner value."

The deal requires shareholder approval, and approval of Pennsylvania, Missouri, and Florida regulators.

Southern Union spokesman George Yankowski said prices for LDC assets are rising, "but we still believe they're going to go higher. There's real value in access to the customer. Another thing this acquisition does for us is it brings our equity to roughly 50% of our total capital." He said the company will be in a better position to move forward with even larger acquisitions.

Southern Union is headquartered in Austin, TX, and mainly engages in the distribution of natural gas and is the 15th largest distributor in the nation. The company serves more than 1 million customers through its three natural gas divisions in Texas, Missouri, Florida, its propane distribution subsidiaries, and its equity ownership in a natural gas distribution company serving Piedras Negras, Mexico. Through its subsidiaries, Southern Union also markets natural gas to end users, operates propane distribution and natural gas pipeline systems and markets propane gas.

PEI is a holding company with regulated and non-regulated subsidiaries. The regulated group consists of PG Energy and its subsidiary, Honesdale Gas Co., which together provide natural gas to more than 153,000 customers in 13 counties in northeastern and central Pennsylvania. The non-regulated group consists of PEI Power Corp., Theta Land Corp. and PG Energy Services and its subsidiary, Keystone Pipeline Services Inc. PG Energy Services markets energy and energy products in a large area of Pennsylvania under the name PG Energy PowerPlus.

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