Atlanta-based AGL Resources announced Thursday it would be expanding its East Coast footprint, taking on the natural gas assets of financially and legally devastated NUI Corp. in a merger agreement valued at about $691 million, consisting of $220 million in cash and the rest in debt assumption.
The agreement, which AGL hopes to have closed by the end of October and the start of the heating season, calls for AGL to pay $13.70 per share for all outstanding shares of NUI. It will require approvals from shareholders and regulators in four states, with the principal hurdle being agreements with New Jersey regulators on management of NUI’s principal asset, Elizabethtown Gas.
The purchase also includes three other gas distribution companies, City Gas Company of Florida, which serves Miami and other communities along the central and south Florida coast, the much smaller Elkton Gas in the northeastern corner of Maryland, and Virginia Gas and the Saltville gas storage facility in Virginia.
AGL Chairman and CEO Paula Rosput noted the “good underlying fundamentals” of the distribution assets which are mainly in urban areas with relatively high per capita incomes and customer growth potential. And they came cheap. Rosput advised that the purchase at near book value is almost unheard of for regulated assets.
The purchase is in line with the company strategy of “leveraging our skills to improve LDC operations.” That includes reconfiguring operations to improve productivity in the field and call center. AGL also has an efficient process for engineering and design construction supervision resulting in an “extremely low dollar per new meter” cost. And, it brings capital and a good credit rating to the deal, along with an ability to work with regulators, she added.
The purchase is manageable, given AGL’s strong balance sheet and it should be accretive to earnings within the first year of operations, the company said. Rosput said “protections” were written into the definitive agreement, seeking guarantees from regulators precluding assignment of past NUI liabilities and ensuring AGL will be able to start operations with “a clean slate.”
While working on the agreement for the last two months, AGL already has been in contact with regulators and will seek regulatory approval for an “explicit plan to share revenues from asset management with ratepayers in an open book fashion where regulators have full access to our Sequent Energy Management books,” in the same manner that AGL operates its other LDCs.
The NUI purchase will give AGL “an expanded platform in the Northeast and Southeast,” making the company “the largest distributor in terms of number of customers along the entire East Coast.” The distribution assets are complimented by pipeline capacity and storage assets that are strategically located for serving peak demand, Rosput said.
The acquisition will extend AGL’s “footprint from Florida all the way to New Jersey,” said Kevin Madden, executive vice president of distribution and pipeline operations for AGL. He said the deal was based on acquiring the regulated utility assets in growth areas at about book value and applying AGL’s proven ability to make productivity gains through operational upgrades. “We are looking at the underlying value of the local distribution companies. We did not factor in the opportunities that exist with, for example, Saltville [storage] and some of the other facilities they own.” NUI also owns capacity on the new Patriot Pipeline, although “there are some issues there. But the real foundation is the LDCs and anything else is added opportunity.”
AGL’s Sequent Energy Management, its Houston-based wholesale marketing company, would be expected to aid in the gas supply management of the acquired utilities, expanding the trading company’s operations. In the meantime, NUI announced Thursday it had secured $95 million in financing from Credit Suisse First Boston to finance gas purchases for its LDCs through the winter if necessary.
“We have developed a track record of strong financial performance in large part because of our ability to run utility operations exceptionally well,” said Richard T. O’Brien, AGL Resources executive vice president and CFO. O’Brien is part of the management team assembled by Rosput since she took over as chairman four years ago when the staid utility was reeling from the effects of deregulation of the Georgia market. AGL’s turnaround has been marked by the introduction of automation and an aggressive program of system upgrades, improving reliability, service and the bottom line. The company received an award as 2003 Natural Gas Company of the Year from Platts for its innovative approach to operating utilities and its well-respected management team.
In a press release, AGL said the transaction would do the following:
NUI will be adding 367,000 customers to AGL’s 1.8 million customers, which are served by its subsidiaries, Atlanta Gas Light, Virginia Natural Gas and Chattanooga Gas Co. in Tennessee. AGL’s non-regulated subsidiaries include Sequent and a 70% interest in SouthStar Energy Services, LLC a retail gas marketer.
NUI, wracked by the financial collapse of its brokerage business and investigations of company officials, had put itself up for sale in September 2003, subsequently bringing in former KeySpan executive Craig G. Matthews in as NUI’s new president and CEO to lead the sale of the company. Earlier this year the Bedminster, NJ-based company said it would refund $28 million to Elizabethtown Gas customers and pay a $2 million penalty to the state of New Jersey after an audit that found a broad range of corporate management failures and inadequate financial insulation of the utility operations from NUI’s poorly performing nonutility businesses (see Daily GPI, April 16). NUI also had to refund City Gas of Florida ratepayers $2.6 million.
In a separate settlement late last month, NUI Energy Brokers Inc. (NUIEB), the wholesale energy trading subsidiary, agreed to pay the state of New Jersey $500,000 after pleading guilty to misconduct by a corporate official for transferring funds away from NUI’s utility subsidiaries as part of a gas purchasing program. In a separate agreement with the state on the same day, NUI Corp. agreed to fund and operate certain community service programs because of the misconduct (see Daily GPI, July 1).
Â©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |