April 26 (Bloomberg) -- Suburban Propane Partners LP, the New Jersey-based fuel distributor, agreed to buy the retail propane business of Inergy LP for $1.8 billion in stock, cash and debt, doubling its customer base.
Suburban will pay $200 million in cash and $600 million in common units as well as offer to exchange as much as $1 billion in senior notes, Kansas City, Missouri-based Inergy said in a statement today. The propane unit has 600,000 customers in 33 states, Whippany, New Jersey-based Suburban said in a separate statement.
The acquisition will make Suburban the third-largest U.S. propane distributor by volume, according to the company’s statement, expanding sales into 11 new states. The deal, expected to close in the second half, will increase Suburban’s annual investor payments by 2.6 percent to $3.50 a unit. The company will issue about $250 million in units to fund the purchase.
“The combined operations will be a larger and more geographically diverse company,” Inergy Chief Executive Officer John Sherman said in the statement. The sale accelerates the company’s conversion into a natural-gas gatherer and processor, he said.
Inergy, which had declined 31 percent this year through yesterday, rose 16 percent to $19.51 at the close in New York, the biggest gain since October 2008. Suburban dropped 1 cent to $43.60. The propane company has a market value of $1.54 billion and has dropped 8.4 percent this year.
It will take about three years to fully integrate Inergy’s operations. The company expects annual savings of $50 million once that’s complete, Suburban Chief Financial Officer Michael A. Stivala said today on a conference call with analysts.
Propane is a heating and cooking gas that’s easily pressurized into a liquid for transportation and storage. It accounts for about 4 percent of U.S. energy use, according to the National Propane Gas Association.
Inergy plans to distribute the 13.7 million Suburban common units it will receive to its unitholders.
Greenhill & Co. and Credit Suisse Group AG advised Inergy on the transaction. Evercore Partners Inc. advised Suburban.
AmeriGas Partners LP, based in King of Prussia, Pennsylvania, and Ferrellgas Partners LP, based in Overland Park, Kansas, are the largest U.S. propane distributors by volume, Stivala said on the call.
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