Energy services company AGL Resources Inc. (NYSE: AGL) announced an agreement to acquire rival Nicor Inc. (NYSE: GAS) for about $2.4 billion in cash and stock, creating a leading natural gas distributor in the U.S.
Atlanta-based AGL said the deal will effectively double the number of utility customers it serves. The combined business will include seven regulated natural gas distribution companies providing natural gas service to about 4.5 million customers in Illinois, Georgia, New Jersey, Virginia, Florida, Tennessee and Maryland.
Under terms of the agreement, Nicor stockholders will receive $21.20 in cash for each Nicor share and 0.8382 shares of AGL, which together represent a value of $53. That’s a 13 percent premium to Nicor’s closing stock price of $46.76 a share on Monday. The combined company will have an enterprise value of $8.6 billion.
Together we will establish a platform for growth that is superior to what either company could achieve on its own. By combining with Nicor, we will be able to enhance earnings growth while maintaining a strong balance sheet and improving cost-effectiveness, said AGL chief executive John Somerhalder II.
Naperville, Illinois-based Nicor's main business is Nicor Gas, one of the nation's largest gas utilities serving nearly 2.2 million customers in northern Illinois.
Following the merger, AGL is expected to become a Fortune 500 company. AGL is expected to own about 67 percent of the combined company, which is expected to have about $5.1 billion in annual revenue.
AGL said the deal will be neutral to its earnings per share first full year post completion and add to bottomline thereafter.
The companies expect to close the deal in the second half of 2011.
AGL will fund the purchase through an exchange of stock with Nicor shareholders in addition to about $1 billion of cash.
Gas producers' willingness to tap unconventional shale assets amid weaker natural gas prices and technological improvements has set the tune for
consolidation in the industry. Energy behemoths, flush with cash, have been scouting for additional resources.
Among the notable deals in the natural gas industry, California-based Chevron said in November it will buy natural gas producer Atlas Energy in a $4.3 billion deal to gain attractive natural gas resource positions in southwestern Pennsylvania's Marcellus Shale.
Recently Exxon Mobil, the largest energy company in the US, shelled out $41 billion to buy natural gas firm XTO Energy in one of the biggest deals in the industry.
About 52 percent of U.S. households use natural gas for heating, according to the Energy Department.
Goldman, Sachs & Co. is acting as exclusive financial advisor to AGL Resources, while J.P. Morgan is advising Nicor.
Shares of AGL, which ended Monday's trading at $37.13, fell 0.75 percent to $36.85 in premarket trade on Tuesday. Nicor stock is up 7.89 percent to $50.45 in premarket trade.