AGL Resources Inc. announced last week it has signed adefinitive agreement to acquire Virginia Natural Gas (VNG), awholly owned subsidiary of Dominion Resources, for $500 million incash. Dominion was required by regulatory authorities to sell theproperty as part of its merger completed earlier this year withConsolidated Natural Gas.

The purchase price includes $22 million in working capital. Thepending acquisition would boost AGL’s base of customers to nearly1.8 million, making it the second largest natural gas-onlydistributor in the U.S. and establishing its presence in one of thefastest growing gas markets.

Virginia Natural Gas, headquartered in Norfolk, VA, servesapproximately 230,000 natural gas customers. Customer growth at VNGhas averaged 4% in recent years — three times the nationalaverage.

Under the agreement, AGL Resources would acquire all of theoutstanding stock of VNG. At the option of the seller, the partiesmay elect to treat the transaction as a sale of assets for taxpurposes, in which case the purchase price will be increased to$550 million to reflect the increased value of the transaction toAGL Resources.

Upon completion of the transaction, expected by Dec. 31 of thisyear, VNG will become a wholly owned subsidiary of AGL Resources.The transaction will be accounted for as a purchase and will beaccretive to AGL Resources’ earnings no later than 12 months afterthe close.

Walter M. Higgins, chairman and chief executive officer of AGLResources, said the move is timely in light of AGL’s success inimproving operations and earnings in a rapidly deregulating naturalgas market.

“This acquisition is all about growth and competition. Our focusthis past year on achieving excellence in our operations is payingoff for customers and shareholders,” said Higgins. “Ouryear-to-date results have exceeded analyst expectations and we havegained valuable experience in operating efficiently and profitablyin a deregulated environment. These strengths, when combined withthe best practices of VNG, will allow us to grow profitably in bothour utility and gas marketing businesses .as our industry continuesto reshape itself for competition.”

The Virginia State Corporation Commission and the Federal TradeCommission earlier this year had required Dominion Resources todivest VNG as part of Dominion’s planned merger with ConsolidatedNatural Gas Company. Virginia is transitioning to competition ingas and electric services, including some pilot programs forderegulated natural gas services, and Higgins said AGL Resourceswould actively support the those efforts.

AGL Resources intends to register as a holding company with theSecurities and Exchange Commission under the Public Utility HoldingCompany Act (PUHCA) of 1935 in order to complete the transaction.

Ellen Beswick

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