A big fish gobbled up yet another small fish in the Northeastyesterday as Southern Union Co. (SU), the spurned suitor ofSouthwest Gas, announced it has agreed to purchase ProvidenceEnergy (ProvEnergy) for a total transaction value of $400 million.The deal, which SU expects to close in nine to 12 months,represents SU’s third Northeast utility purchase this year. If allthese deals are completed, Southern Union will serve 1.5 millioncustomers in Rhode Island, Massachusetts, Pennsylvania, Texas,Missouri and Florida.

Providence Energy, whose main subsidiaries include ProvGas andNorth Attleboro Gas Co., will operate as an autonomous division ofSouthern Union with the headquarters remaining in Rhode Island, andthere will be no material changes to the operations of ProvEnergy.Southern Union will honor all of ProvEnergy’s union contracts and,according to Peter Kelley, SU’s COO, no layoffs are anticipated asa result of the transaction. ProvEnergy CEO James Dodge will becomea member of Southern Union’s board of directors.

The transaction will require certain legal approvals includingthe approval of Providence Energy shareholders, the Rhode IslandDivision of Public Utilities and Carriers and the MassachusettsDepartment of Telecommunications and Energy, as well as regulatorsin Missouri, Pennsylvania and Florida, where Southern Unioncurrently has operations.

“SU is an aggressive company. It falls in the same fold asEnergy East and Eastern Enterprises before it got bought byKeySpan. SU is collecting as many of these utilities as it can andwill sit back after a while and decide if it wants to make themwork or sell them to another big player,” said Ed Tirello, ananalyst with Deutsche Banc Alex. Brown.

Tirello said the pickings are getting slim in the Northeast.”With last week’s merger involving Berkshire Energy Resources, Ithought there were only two more New England utilities left on themarket. Now that SU has bought ProvEnergy, which is a real plum bythe way, the only utility still out there is Valley Resources.”

Cumberland, RI-based Valley Resources may not be on the marketfor very long. Market speculation of its impending sale droveValley’s stock price up almost 10% yesterday, finishing at $18.38.

Under the terms of the agreement, ProvEnergy shareholders willreceive $42.50/share in cash. This represents a 46% premium overthe average closing price of ProvEnergy common stock during theprevious 30 trading days and a 29% premium over ProvEnergy’sclosing price of $32.86 on Nov. 12.

“ProvEnergy provides Southern Union a hub in the New Englandarea,” said Kelley “With this step, we intend to continue to expandin the attractive and diversified northeastern region.”

With the addition of ProvEnergy’s 180,000 gas customers, SU willhave gained over 350,000 customers in acquisitions this year. Thenow completed merger with Pennsylvania Enterprises contributed over150,000 gas customers in northwestern and central Pennsylvania. TheOctober addition of Fall River Gas Co. contributed more than 40,000customers in Southeast Massachusetts to SU’s total.

“I can’t say I was surprised,” said Zach Wagner, an analyst forEdward Jones. “ProvEnergy was the only reasonably sized gas utilityin New England and it was on the top of everyone’s list. One of thereal hidden jewels in this transaction is ProvEnergy Services. Thisretail non regulated subsidiary is growing very fast, and thisgrowth has not shown up in the overall earnings yet, but it will.”

SU’s customer base could have been much larger if the Austin,TX-based company’s unsolicited attempt to purchase Southwest Gashad been successful. A combination with Southwest Gas of Las Vegas,NV, would have made SU the nation’s largest gas-only distributioncompany, serving more than 2.2 million customers. Yet Southwestchose a bid from Oneok instead, and SU’s repeated attempts to haltthe merger are still ongoing.

“Southern Union is not a ‘lamenter’. It has a hit list. Somework out and some don’t,” Tirello said. The company has moved pastthe Southwest situation and is continuing to follow its strategy.”

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