NiSource Inc said electricity and gas utility Unitil Corp agreed to buy two of its units for $160 million in a deal expected to strengthen Unitil's gas utility operations and expand the company's customer base by 40 percent.

NiSource said Unitil is expected to pay an additional $25 million for natural gas storage inventory and other working capital items.

Unitil's purchase of the two units, Northern Utilities Inc and Granite State Gas Transmission, is expected to be financed by newly issued common stock and debt.

Northern Utilities is a local natural gas distribution utility serving customers in Maine and New Hampshire. Granite's principal business is delivering natural gas transportation services to Northern Utilities and providing access to inter-state natural gas pipeline supplies.

Following the deal, expected to close by the fourth quarter, both Northern Utilities and Granite will become units of Unitil.

NiSource had acquired Northern Utilities and Granite in 1999 as part of its larger acquisition of Bay State Gas Co. The company is retaining ownership of Bay State.

Unitil is being advised by RBC Capital Markets Corp and law firm Dewey & LeBoeuf. NiSource is being advised by the Blackstone Groupand law firm Schiff Hardin. (Reporting by Aniruddha Basu in Bangalore; Editing by Pratish Narayanan)