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Southern Co. selling 2 gas utilities to South Jersey Industries in $1.7B deal

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Southern Co. selling 2 gas utilities to South Jersey Industries in $1.7B deal

Southern Co. Gas subsidiary Pivotal Utility Holdings Inc. has agreed to sell the assets of its utility operating divisions, Elizabethtown Gas Co. Inc. and Elkton Gas Co., to South Jersey Industries Inc. in a $1.7 billion deal.

The all-cash transaction is intended to strengthen the balance sheets of Southern Co. Gas and parent Southern Co. by reducing existing financing requirements. "[T]he transaction is beneficial to our company and aligns with our overall business strategy to drive growth and prosperity," said Southern Co. Chairman, President and CEO Thomas Fanning in an Oct. 16 statement.

On the other hand, the deal would see SJI become the second largest natural gas provider in New Jersey, with service to more than 675,000 customers. In addition to Elizabethtown Gas' 288,000 customers, the company will also add more than 6,000 customers in Maryland as part of the deal.

SJI owns South Jersey Gas Co., which serves approximately 381,000 residential, commercial and industrial customers in the seven southernmost counties of New Jersey. The Folsom, N.J.-based company expects the transaction to be accretive to earnings by 2020, the first full year of operation post transaction impacts, without synergies, boosting utility earnings contribution to more than 80% of total earnings, from about 70%.

"The acquisition of Elizabethtown Gas and Elkton Gas is a great fit for SJI and reinforces our commitment to high quality, regulated earnings growth," said Michael Renna, President and CEO of SJI. "We share the same business model and are committed to the highest standards of safety, reliability and environmental stewardship.

To permanently fund the deal, SJI plans to issue common equity, mandatory convertible securities and long-term debt. The company also has a fully committed $2.6 billion bridge financing facility in place led by Bank of America Merrill Lynch, TD Securities and Guggenheim Securities.

The transaction is expected to be operationally seamless to customers and South Jersey Industries will continue providing service at utility regulator-approved tariff rates and will maintain commitments to employees in place at the time of deal closing.

The companies expect to complete the deal by the third quarter of 2018. The deal is subject to approvals from the New Jersey Board of Public Utilities, the Maryland Public Service Commission, the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and certain limited approvals by the Federal Energy Regulatory Commission and the Federal Communications Commission.

Goldman Sachs & Co. LLC is serving as exclusive financial advisor and Baker Botts LLP is serving as legal counsel to Southern Co.

SJI executives will conduct a webcast and teleconference to further detail the transaction at 8:45 a.m. ET.