AGL pays $2.4 billion for Illinois company; distribution HQ to move

Atlanta-based AGL Resources is buying a large Illinois gas utility, nearly doubling its size.

The move will make AGL the biggest natural gas-only utility company in the United States at a time when gas is poised to become a more dominant fuel source nationwide.

The company, which owns Atlanta Gas Light, five other regulated gas utility companies and several unregulated ventures, confirmed rumors Tuesday that it will buy Nicor Inc., based in Naperville, Ill., for $2.4 billion in cash and stock.

The Nicor utility, with 2 million customers, would supplant Atlanta Gas Light (1.5 million)  as the biggest utility in AGL's 2.3 million-customer system.

It's unclear what the deal will mean to the company's operations here, or to what extent it would affect Georgia jobs.

AGL's corporate headquarters will remain in Atlanta. But the company that manages its regulated utilities will be run out of Naperville. The company said Georgia customers should expect no change in their services, and Atlanta Gas Light operations still will be based in Atlanta.

The combined AGL is expected to become a Fortune 500 company, with an enterprise value of $8.6 billion, according to a company press release.

In a press release, AGL chief executive John Somerhalder said the acquisition gives the company "increased scale and greater diversity in both our regulated and unregulated businesses," adding that the combination will bring efficiencies and synergies -- often code for job cuts.

But in a teleconference Tuesday morning, Somerhalder steered analysts away from questions about savings it could achieve by adding such a large utility to its system.

The downplaying puzzled some analysts, who said the company had recently talked about such savings in light of a Georgia Public Service Commission ruling six weeks ago.

The ruling allowed the parent company and its investors to keep half of the savings benefits from an acquisition for 10 years, instead of crediting the savings back to Atlanta Gas Light gas customers.

"And then bang, they go out an announce the biggest gas utility acquisition in their history a couple of months later," said analyst Gordon Howald of East Shore Partners in New York.

"There's a lot of politics involved with regulated companies, and utilities don't want to come out and talk about what they can do in terms of synergies," Howald said.

"The governors don't like it. The politicians don't like it.  Synergy usually means personnel."

The acquisition makes AGL a major player in a business that may be poised to get bigger.

New gas drilling technologies are swelling supplies and dropping costs of natural gas, increasing interest in using the fuel instead of coal or even gasoline.

Some PSC members said they were pleased with the news, even before AGL made it official.

Commissioner Stan Wise said the deal vindicates the commission's decision to encourage AGL's expansion and Commissioner Chuck Eaton said the deal seemed to be keeping jobs in Georgia.

"It's better to be an acquirer than an acquiree," Eaton said.

Commissioner Robert Baker, who voted against the acquisition incentive, said he believes the company knew at the time that it would be making a major purchase.

"They had to know," he said, adding the $2.4 billion purchase price belied AGL's "poor-mouthing in the recent rate case."

Reception on Wall Street was muted.

East Shore's Howald downgraded his opinion on AGL from buy to neutral Tuesday morning, saying the company is paying too much.

AGL is buying Nicor shares for $21.20 in cash and .838 shares of AGL stock, for a total of $53 per share based on AGL's stock value on Dec. 1.

That's a 22 percent premium over what Nicor's stock commanded before acquisition rumors surfaced last week.

"They're paying 2.2 times book value," Howald said. "It's a pretty steep price to pay.

"I'm still not 100 percent clear on what the real value is," Howald said. "I don't understand what value they're getting."