Electric utility firm The Southern Company (NYSE:SO) is set to offload two natural gas distribution units to Folsom-based energy services company South Jersey Industries (NYSE:SJI) for $1.7 billion in an all-cash transaction.
The units to be divested include Elizabethtown Gas and Elkton Gas. These units are owned by Pivotal Utility Holdings, Inc. which is a subsidiary of Southern Company Gas. Southern Company Gas which was formerly called AGL Resources (NYSE:GAS) is a subsidiary of the Southern Company and is headquartered in Atlanta. Elizabethtown Gas, set up in 1855, serves more than 277,000 residential, business and industrial natural gas customers in New Jersey. Founded in 1863, Elkton Gas serve 6,000 residential and commercial customers in the greater Elkton area.
The deal needs to be approved by the state regulators in New Jersey and Maryland. It also requires limited approvals from Federal Energy Regulatory Commission and Federal Communications Commission. Additionally, the deal is also conditioned upon the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Subject to these regulatory approvals and satisfactory closing conditions, the deal is expected to get completed by the third quarter of 2018.
The deal is in sync with Southern Company’s strategy to drive growth and streamline its asset portfolio. The transaction will enable the company to shore up its weak financials. The utility's long-term debt at the end of the second quarter totaled to around $44 billion, which represents a debt-to-capitalization ratio of more than 60%. The company’s high leverage along with the cost overrun issues related to the construction of two key projects — Vogtle and Kemper — weighed on its balance sheet and earnings. The proceeds from the sale are likely to provide the company some financial flexibility and tap growth opportunities, thereby adding to shareholders value.
The deal will enable South Jersey Industries to become the second largest natural gas provider in the state, catering to over 675,000 customers. The company expects the deal to be accretive to earnings by 2020.
Zacks Rank
Southern Company is one of the largest generators of electricity in the nation along with the likes of Exelon Corporation (NYSE:EXC) and Duke Energy Corporation (NYSE:DUK) among others. Year to date, shares of Southern Company have moved up 4% as against 9.6% gain recorded by the industry.
The company topped the Zacks Consensus Estimate for earnings in three of the trailing four quarters, with an average of 0.86%. The company presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Exelon Corporation (EXC): Free Stock Analysis Report
Southern Company (The) (SO): Free Stock Analysis Report
Duke Energy Corporation (DUK): Free Stock Analysis Report
South Jersey Industries, Inc. (SJI): Free Stock Analysis Report
Original post
Zacks Investment Research