Marking its fourth Northeast LDC purchase this year, SouthernUnion (SU) bought Cumberland, RI-based Valley Resources for $160million, including the assumption of debt, the companies saidyesterday. The boards of directors for both Valley Resources and SUhave unanimously approved the deal. The merger is expected to becompleted within nine months.

Valley Resources is a public utility holding company withnatural gas distribution systems in northeastern and eastern RhodeIsland serving a total of 66,000 customers. Under the terms of theoffer, SU would pay $25/per share to Valley Resources’ common stockholders. This represents a 53% premium over the average closingprice of Valley Resources common stock during the previous 30trading days, SU said.

Barring any other SU acquisitions, the Austin, TX-based companywill have more than $1.1 billion tied to merger proposals for 1999.The Valley purchase follows the $500 million consummation of SU’smerger with Pennsylvania Enterprises, Inc. Nov. 4, and theannouncements 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, SUwill serve nearly 1.6 million gas and electric customers in sixstates. SU hopes to have all the moves finalized by next September,Yankowski said.

Valley’s purchase was not unexpected. When SU bought ProvidenceEnergy Corp. last month, Ed Tirello, an analyst with Deutsche BancAlex. Brown, predicted Valley would be the next utility to be takenoff the shelf (see Daily GPI, Nov. 16).

“Now it’s time to move south,” said Zach Wagner, an analyst withEdward Jones. “I think New Jersey is the next state. There arethree gas utilities that would be attractive to aggressivecompanies like SU. NUI Corp., South Jersey and New Jersey Naturalall have an equal chance of being bought and I think one of themwill go in the next 12 months.”

SU said all these moves are intended to strengthen itscompetitive position in the attractive Northeast energy market. “Wecontinue to seek the best strategic moves to position [SU] to takeadvantage of the emerging opportunities in the energy industry.Valley Resources will help fortify the foundation on which we baseour low-cost and customer-oriented services,” SU President Peter H.Kelley said.

Yankowski said the Valley Resources purchase does not signal theend of SU’s acquisition plan. It might, however, represent aturning point. “I don’t think there is anything left to buy in theNortheast for us,” he said. “We are not done looking for moregrowth 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. “FallRiver, Providence Energy and now Valley Resources are all withinshort geographical distances of each other, and there are costsavings to be had by combining the three operations under oneumbrella. They will use Providence Energy as their Northeastheadquarters. Financially, they have not spread themselves thinbecause each move, by itself, has been relatively small.”

Valley Resources will operate as a division of SU and no layoffsare anticipated as a result of the transaction, the companies said.

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