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
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
"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
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
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.