Nicor Gas Is Said to Seek Buyers, Work With JPMorgan

Nicor Inc., the Chicago-area natural- gas utility with a market value of about $2 billion, is seeking a buyer, according to people with knowledge of the matter.

JPMorgan Chase & Co. is running the auction and started contacting potential buyers two to three months ago, said the people, who spoke on the condition of anonymity because the talks are private. Some utility companies and infrastructure funds were approached and decided the price for Nicor was too high to submit a bid, some of the people said.

Nicor’s natural-gas distribution unit, Nicor Gas, has more than 2 million customers in northern Illinois and the Chicago suburbs. The utility has limited growth opportunities because large population increases are not expected in the region, said Andrew Pusateri, an analyst at Edward Jones in St. Louis.

Nicor Gas provided almost 80 percent of the company’s 2009 sales, according to data compiled by Bloomberg.

Nicor rose $3.11, or 7.2 percent, to $46.63 at 4:15 p.m. in New York Stock Exchange composite trading.

Nicor Chief Executive Officer Russ Strobel, 58, is pursuing a sale as the Naperville, Illinois-based company’s shares trade at 15 times estimated 2011 earnings. That multiple compares with about 12 times for the Standard & Poor’s 500 Utilities Index.

The company’s relatively high valuation may make it hard to find a buyer, Mark Barnett, an analyst with Morningstar Inc. in Chicago, said in a telephone interview.

“It is hard to see who would be excited by the prospect of taking them out,” said Barnett, who rates Nicor shares three stars out of five and doesn’t own any.

Pension Funds

The most likely bidders would likely be private equity or pension funds seeking the steady flow of income produced by Nicor’s regulated gas distributor, Barnett said.

Integrys Energy Group, which owns Peoples Gas, a natural-gas utility in Chicago, would make “the most sense” out of publicly traded utility companies that might have an interest because of cost savings achieved by combining service territories, Barnett said.

Annette Martinez, a spokeswoman for Nicor, said she couldn’t comment. Bonnie Johnson, a spokeswoman for Integrys Energy, also declined to comment.

In addition to the gas utility, Nicor owns Tropical Shipping, a freight business operating in the Bahamas and Caribbean.

Nicor shares closed at $43.52 yesterday in New York Stock Exchange composite trading, valuing the company at about $2 billion. The company had about $729 million of net debt as of Sept. 30.

Editors: Jennifer Sondag, Charles Siler.

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