AGL Resources Inc. (AGL), Atlanta, is acquiring Virginia Natural Gas (VNG), a wholly owned subsidiary of Richmond, Va.-based Dominion Resources Inc., for $500 million cash. AGL says the deal will boost its customer base to nearly 1.8 million, making it the second largest natural gas-only distributor in the US.
The purchase agreement is subject to regulatory approval, but AGL anticipates the transaction will be complete by the end of the year.
Earlier this year, the Virginia State Corporation Commission and the US Federal Trade Commission required Dominion to divest its ownership of VNG as part of Dominion's planned merger with Consolidated Natural Gas Co.
Terms of the divestiture agreement call for AGL to acquire all of VNG's outstanding stock, making it a wholly owned subsidiary. The transaction also would establish AGL in one of the fastest growing gas markets in the country.
Based in Norfolk, Va., VNG serves about 230,000 natural gas customers in southeastern Virginia. The company ranks among the top 10% of fastest growing local distribution companies, according to a survey by the American Gas Association.
"This acquisition is all about growth and competition," said Walter M. Higgins, chairman and CEO of AGL.
Higgins said the company has gained "valuable experience in operating efficiently and profitably in a deregulated environment." Combining its strengths with those of VNG will allow AGL "to grow profitably both in our utility and gas marketing businesses," which will create new value for shareholders as the Virginia market is reshaped for competition. Virginia is transitioning to competition in gas and electric services, which include some pilot programs for deregulated gas services.
The company said its acquisition of VNG would not affect its previously announced share repurchase program. AGL has already bought back 3 million of the 3.6 million shares currently authorized for repurchase. It had 54 million shares outstanding as of Mar. 31.
Moody's Investors Service placed AGL and its subsidiaries under review for possible downgrade. It said AGL would finance the acquisition initially with bank debt at the holding company level. Moody's said AGL has yet to determine how the acquisition will be permanently financed and at which AGL entity the financing would occur.
