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Southern Company buys AGL for $12 Billion in a “Clean Power Plan”- influenced Deal

— August 25, 2015

The nation’s third-largest utility company, Southern Company, announced on Monday that it has purchased natural-gas provider AGL Resources for $8 billion as well as assuming $4 billion of debt, adding up to a total purchase price of $12 billion. Many believe that the deal, which offers a premium of $66 per share for AGL stakeholders, will be the beginning domino in a rapid succession of mergers and acquisitions in the utilities sector, largely due to new Obama administration regulations dubbed the “Clean Power Plan.” The purchase will make Southern the second-largest utilities provider in America, potentially doubling its customer base to nine million people stretching from New Jersey to Florida. AGL’s stock value rose 29 percent even though the Dow Jones average lost over 1000 points between Friday and Monday night.

The deal, technically a merger, will keep AGL intact as a wholly-owned subsidiary of Southern, retaining its headquarters, management team, and board of directors in the process. Both companies are based in Atlanta, with Southern controlling much of Georgia, Florida, Alabama, and Mississippi. AGL operates primarily in the Mid-Atlantic, along with Georgia, Florida, and Illinois. Southern executives explained the motivation for the purchase to be, in large part, due to the new emissions regulations that will likely phase out coal-powered plants, leaving natural gas facilities to be a much more attractive alternative. According to Southern’s CEO Tom Fanning, “Natural gas will play a greater and greater role in primary energy needs. Driving this deal are growth opportunities.” Southern has seen recent investments in “clean coal” and nuclear facilities disappoint due to delays and cost inefficiencies. The Clean Power Plan, for many, is seen as the end of the clean coal argument.

In addition to increasing its customer base, the deal will give Southern vital infrastructure. Currently the company generates about 40 percent of its electricity through both coal and natural gas alike, but the company hopes to rely on the cleaner burning natural gas by as much as 55 percent by 2020, reducing coal usage to 21 percent. Southern will add to its 73 power plants, gaining valuable pipeline access and storage facilities. AGL has also partnered with several of Southern’s competitors, including Duke Energy, Dominion Resources, and Piedmont Natural Gas on joint venture pipeline projects. Among these projects includes a 550-mile, $5 billion pipeline being built from West Virginia to Virginia and North Carolina. In total, the move would give Southern over 200,000 miles of electrical lines and 80,000 miles of natural gas pipelines under its operation.

The deal is expected to be finalized sometime in the latter half of 2016. It must also pass an antitrust review and be approved by AGL shareholders. The 38 percent share premium paid, as of Friday’s stock close, is significantly higher than two mergers announced last year: Wisconsin Energy’s purchase of Integrys at 17 percent and Exelon’s 20 percent premium in a purchase of Pepco. Analysts expect more companies to follow in a similar fashion, with recent joint investment activity between Duke Energy and Florida Power and Light to be a potential indicator for merger speculation. According to a May survey by Ernst & Young of 1,600 global power and utilities sector executives, 45 percent of companies are ready to pursue acquisitions in the next 12 months.



Forbes – Brigham A. McCown

New York Times – Jeffrey Goldfarb

Wall Street Journal – Cassandra Sweet

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