This article was written by Oilprice.com, the leading provider of energy news in the world. Check out these other articles.
- Oil Prices See A Modest Rebound As Some Bullish Signals Appear
- Does Arctic Drilling Have A Future With Sub $50 Oil?
Southern, which owns utilities throughout the Southeastern United States, said Aug. 24 that it intends to buy AGL, which specializes in gas, for about $8 billion in a move to increase its gas holdings and provide it with additional revenue. Overall, the deal is valued at $12 billion, including the settling of debts.
If approved by regulators, the merger of the two companies, both based in Atlanta, would create an entity with 9 million customers along the U.S. Atlantic coast. That would make the combined company second in customers only to Chicago-based Exelon Corp., the largest operator of nuclear power plants in the country. The new company also would operate 11 electric and natural gas distribution companies.
An important reason for the merger is the decline in the use of coal in the United States, concern about nuclear power since the 2011 Fukushima accident in Japan, and a flattening of demand for electricity in the United States. In the past few years, Southern has had trouble with its efforts to generate electricity with coal and nuclear power.
But American's appetite for gas -- inexpensive and relatively clean-burning -- is growing, and Southern's CEO, Tom Fanning, said the company wants to capitalize on that trend. "Natural gas will play a greater and greater role in primary energy needs," he said during a conference call with reporters to discuss the merger. "Driving this deal are growth opportunities."
One of those opportunities would be realized with Southern assuming AGL's 5 percent share in the Atlantic Coast pipeline, a 550-mile-long conduit that carries gas south from the Marcellus shale energy field in Pennsylvania.
Southern now owns power utilities in Alabama, Florida, Georgia and Mississippi. AGL Resources distributes gas in Florida, Georgia, Illinois, Maryland, New Jersey and Tennessee. The merger would give Southern possession of all these assets.
"The addition of AGL Resources to our business will better position Southern Co. to play offense supporting America's energy future through additional natural gas infrastructure," Fanning said in a separate statement. "For some time we have expressed the desire to explore opportunities to participate in natural gas infrastructure development."
AGL Chairman and CEO John W. Somerhalder II also praised the deal. "[W]e believe it will provide new opportunities and enhanced value for our shareholders, customers and employees," he said. "The purchase price is reflective of the strong platform for growth that we have diligently cultivated over the past several years, and accelerates value recognition for these efforts."
If the deal is approved, AGL, like other Southern subsidiaries, will be able to keep its current managers and board of directors and even its current corporate headquarters. AGL's customers also will continue to be served by their current utilities. Until closing, the two companies will operate as discrete entities.