Laclede Group Inc., owner of Missouri’s largest natural gas company, agreed to buy utility assets from Energy Transfer Partners LP and Energy Transfer Equity LP for $1.02 billion in cash to almost double its customer base as it seeks more acquisitions.
Laclede, based in St. Louis, also agreed to assume $20 million in debt to purchase Missouri Gas Energy and New England Gas Co., according to a statement today. The $898 million market value company plans to issue debt and equity to finance the deal, executives said today on a conference call.
“This investment is transformative,” Laclede Chief Executive Officer Suzanne Sitherwood, 52, said in the statement. The purchase “will effectively double our size by increasing our utility customer base from approximately 630,000 to nearly 1.2 million.”
Laclede will become the fourth largest U.S. gas distributor by customers, behind Atlanta-based AGL Resources Inc., Dallas-based Atmos Energy Corp. and Las Vegas-based Southwest Gas Corp., Chief Financial Officer Mark Waltermire said today on a conference call with investors.
Missouri Gas and Northeast Gas are the first attractive gas distributors up for sale since Sitherwood’s arrival last year from AGL Resources Inc., which became the largest U.S. gas distribution owner in a series of transactions capped by the $3.2 billion purchase of Nicor Inc. a year ago, said Timothy Winter, a St. Louis-based analyst for Gabelli & Co.
“She’s sort of applied the AGL strategy to Laclede,” said Winter, who rates Laclede shares at hold and owns none himself. “She outlined that she was putting a system and personnel in place to accommodate the acquisition of additional gas utility properties.”
Laclede’s acquisition team will continue to examine each of the two or three U.S. gas utilities that come up for sale each year while today’s takeover is pending, Sitherwood said today in a telephone interview. While the Midwest is a “better place for us,” the company will look nationally, she said.
Missouri Gas supplies about 500,000 homes and businesses in the state’s west, including Kansas City and Joplin. New England Gas has 50,000 customers in southeastern Massachusetts.
Moody’s Investors Service said today it may lower its rating on Laclede and on Laclede Gas, because of debt needed to finance the purchase. Laclede is currently rated at Baa2, the second-lowest investment grade rating, and the utility is rated at Baa1, the third lowest.
“Laclede Group is paying a big premium for a once-in-a-lifetime opportunity to buy its neighbor,” Moody’s analyst Mihoko Manabe said today in a statement. “Consolidated debt could more than double while incremental cash flow will increase less.”
Laclede fell 1.9 percent to $39.10 at the close in New York. As of Dec. 14, the shares had fallen 1.5 percent this year. Energy Transfer Equity rose 1.4 percent to $47.05, and Energy Transfer Partners rose 2 cents to $42.89.
Kelcy Warren, chairman and CEO of Dallas-based Energy Transfer Partners, has been trying to simplify the partnerships’ structures and sell businesses after buying Southern Union for $5.4 billion in March and Sunoco Inc. in October. The utilities, acquired in Energy Transfer Equity’s Southern Union purchase, were “non-core assets,” Warren said in the statement. He had said Aug. 8 the gas utilities might be sold.
The utilities had combined revenue of approximately $517 million for the 12 months ending Sept. 30, according to the statement. The transaction is expected to close by the end of the third quarter subject to regulatory approval. It will be neutral to earnings the first full year after closing and is expected to boost profits the following year, Laclede said.
Wells Fargo & Co. will provide a $1.02 billion bridge loan for the purchase, according to the statement. The company had a market value of $899 million as of the Dec. 14 close.
“They can digest it,” Winter of Gabelli said. “The numbers work.” Cost cuts, which Sitherwood declined to quantify on the call, will be needed to meet profit targets, he said.
Wells Fargo advised Laclede and Akin Gump Strauss Hauer & Feld LLP acted as legal counsel. Credit Suisse Group AG advised Energy Transfer Equity, Energy Transfer Partners and Southern Union and Latham & Watkins LLP was their legal adviser.
Energy Transfer Partners owns a controlling stake in the owner of Southern Union, according to today’s statement. Energy Transfer Equity controls Energy Transfer Partners through ownership of its general partner.
Laclede won an auction for the properties, Waltermire said on today’s call. It intends to pursue additional customers, Sitherwood said.