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Contractor Merger Targets Gas Pipeline Build-Out

September 7, 2009
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Houston-based contracting services provider Quanta Services Inc. has agreed to acquire privately held Price Gregory Services Inc., a natural gas and oil transmission pipeline infrastructure services provider, for cash and stock worth about $350 million. The deal is in anticipation of "substantial growth" in infrastructure development to support unconventional gas plays, Quanta said.

Price Gregory, based in The Woodlands, TX, specializes in the construction of large-diameter transmission pipelines. Building on Quanta's experience in the electric power transmission industry, the acquisition of Price Gregory positions Quanta as a leader in the North American energy transmission infrastructure market, Quanta said.

"We are confident that the additional resources, expertise and client relationships that Price Gregory brings will support our efforts to capture attractive opportunities in the natural gas pipeline infrastructure market, which is projected to grow significantly in the next decade and beyond," said Quanta CEO John R. Colson.

"While demand for transmission pipeline construction has recently been impacted by the recession and low natural gas and oil prices, substantial growth is projected over the next decade as domestic natural gas plays a larger role in meeting this country's energy independence and clean energy goals. Significant recoverable gas reserves have been discovered in tight shale reservoirs throughout the country, and new pipeline infrastructure is required to transport natural gas from these new sources to end markets."

Price Gregory's business is two-thirds natural gas and one-third oil pipelines, Quanta said. Customers include El Paso Corp., Kinder Morgan, TransCanada Corp., BP, EnCana Corp., Anadarko Petroleum Corp. and Boardwalk Pipeline Partners LP. Colson told financial analysts during a conference call last Thursday that Quanta has high hopes for Price Gregory's as well as its own business.

"Our organic business in 2009 was down considerably...We're not seeing a huge improvement, although I think we're seeing some improvement in our natural gas business," Colson said. "We're not seeing huge improvements out there, but I think we will see some growth in 2010 over '09...We think probably 2010 is the low point."

Quanta said it will issue approximately 11.1 million shares of common stock, valued at $250 million, and will pay approximately $100 million in cash, subject to adjustment. The transaction is expected to close in the fourth quarter.

Price Gregory is expected to achieve revenues of $1.1-1.2 billion and earnings before interest, taxes, depreciation and amortization of $170-190 million for the year ended Dec. 31, 2009, Quanta said. The transaction is expected to be accretive to Quanta's earnings per share before amortization expenses by 13-21 cents in 2010. Beyond 2010, Price Gregory's revenues and operating income are expected to grow as a result of increasing demand for natural gas infrastructure.

Price Gregory was formed in January 2008 by the combination of H.C. Price Co. and Gregory & Cook Construction Inc. With roots dating back to the 1920s, the companies have played a role in the build-out of the transmission pipeline infrastructure across the United States.

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