Southern Union Strikes Again
Marking its fourth Northeast LDC purchase this year, Southern
Union (SU) bought Cumberland, RI-based Valley Resources for $160
million, including the assumption of debt, the companies said last
week. The boards of directors for both Valley Resources and SU have
unanimously approved the deal. The merger is expected to be
completed within nine months.
Valley Resources is a public utility holding company with
natural gas distribution systems in northeastern and eastern Rhode
Island serving a total of 66,000 customers. Under the terms of the
offer, SU would pay $25/per share to Valley Resources' common stock
holders. This represents a 53% premium over the average closing
price of Valley Resources common stock during the previous 30
trading days, SU said.
Barring any other SU acquisitions, the Austin, TX-based company
will have more than $1.1 billion tied to merger proposals for 1999.
The Valley purchase follows the $500 million consummation of SU's
merger with Pennsylvania Enterprises, Inc. Nov. 4, and the
announcements of SU's merger agreements with Fall River Gas Co.
Oct. 5 for $75 million and Providence Energy Corp. on Nov. 15 for
$400 million. Upon completion of the all these transactions, SU
will serve nearly 1.6 million gas and electric customers in six
states. SU hopes to have all the moves finalized by next September,
Valley's purchase was not a total surprise. When SU bought
Providence Energy Corp. last month, Ed Tirello, an analyst with
Deutsche Banc Alex. Brown, predicted Valley would be the next
utility to be taken off the shelf (see NGI, Nov. 22).
"Now it's time to move south," said Zach Wagner, an analyst with
Edward Jones. "I think New Jersey is the next state. There are
three gas utilities that would be attractive to aggressive
companies like SU. NUI Corp., South Jersey and New Jersey Natural
all have an equal chance of being bought and I think one of them
will go in the next 12 months."
SU said all these moves are intended to strengthen its
competitive position in the attractive Northeast energy market. "We
continue to seek the best strategic moves to position [SU] to take
advantage of the emerging opportunities in the energy industry.
Valley Resources will help fortify the foundation on which we base
our low-cost and customer-oriented services," SU President Peter H.
Yankowski said the Valley Resources purchase does not signal the
end of SU's acquisition plan. It might, however, represent a
turning point. "I don't think there is anything left to buy in the
Northeast for us," he said. "We are not done looking for more
growth opportunities, and we will act on anything that makes sense,
but the moves probably will not come from the Northeast."
Wagner said the purchase fits right in with SU's strategy. "Fall
River, Providence Energy and now Valley Resources are all within
short geographical distances of each other, and there are cost
savings to be had by combining the three operations under one
umbrella. They will use Providence Energy as their Northeast
headquarters. Financially, they have not spread themselves thin
because each move, by itself, has been relatively small."
Valley Resources will operate as a division of SU and no layoffs
are anticipated as a result of the transaction, the companies said.