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Southern Union Strikes Again

December 6, 1999
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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, Yankowski said.

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. Kelley said.

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.

John Norris

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