Southern Co. is buying AGL Resources Inc. for approximately $8 billion, which would create the second-biggest utility company in the U.S. by customer base.
The combined business will include 11 regulated electric and natural gas distribution companies, serving approximately 9 million customers in nine states. Customers will continue to be served by their current gas and electric utility companies.
Atlanta-based Southern will pay $66 in cash for each AGL share, a 38 percent premium to the company’s Friday closing price of $47.86.
Southern and AGL put the deal’s enterprise value at about $12 billion. The enterprise value figure typically includes assumed debt.
Tom Fanning, Southern’s chairman, said he and AGL Resources CEO John W. Somerhalder, began talking about joining forces over dinner in February.
A leading driver of the deal, Fanning said in an interview with the Atlanta Journal-Constitution shortly after the announcement, is the coming transition away from coal as an energy source toward natural gas, wind, solar and nuclear.
Said Fanning, borrowing a quote from hockey great Wayne Gretzky, “You skate to where the puck will be. That’s what we’re doing here.”
AGL, which will maintain its headquarters in Atlanta, will become a subsidiary of Southern.
The transaction is expected to add to Southern’s earnings per share in the first full year after the acquisition closes.
Both companies’ boards have approved the transaction, which is targeted to close in the second half of 2016. It still needs approval from AGL shareholders and certain state utility and other regulatory commissions.
Georgia’s Public Service Commission will begin reviewing the deal in the next weeks and months. Among the commission’s questions will be how does a combined Southern Co.-AGL affect competition? As separate companies the two often compete both at the consumer level and among corporate clients.
Commission Chairman Chuck Eaton said there are plenty of positives to recommend the deal.
“If you’re going to be acquired, it’s great that it’s an Atlanta company, great that it’s Southern Co.,” Eaton said. “That way we can keep it all here.”
It also makes business sense, he said.
“Energy is becoming more and more dependent on natural gas,” Eaton said. “That’s a combination of low prices due to the shale gas out West and the fracking. We’re being heavily encouraged through Obama’s clean power plan to move off coal. Natural gas has become more important.”
Eaton also said the Federal Trade Commission will review the deal for anti-trust implications.
Liz Coyle, executive director of consumer advocacy group Georgia Watch, said time will tell the impact this deal will have customers. The group will monitor closely upcoming rate cases for both AGL and Georgia Power, which is owned by Southern Co., to make sure consumer interests are protected as this acquisition goes forward.
“From the standpoint of mergers and acquisitions generally, they’re not done to benefit the consumer, but rather to increase the profits for shareholders,” she said. “It’ll be up to the Georgia Public Service Commission, which regulates both AGL Resources and Georgia Power, to make sure none of the costs of the merger, including the acquisition premium, get passed along in the form of higher rates for the state’s energy consumers.”
Gov. Nathan Deal, in a statement, said, “The decision by Southern Company and AGL Resources to remain in Georgia is further proof that our pro-jobs, pro-growth policies have put our state on the right track. Not only does this venture keep two Georgia-based energy companies here, it creates one of the most robust energy companies in the United States.”
In premarket trading an hour before the market open, AGL Resources shares rose $14.95, or 31.2 percent, to $62.81 while Southern shares dropped 79 cents, or 1.7 percent, to $45.01.
The AP contributed to this report.
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