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Southern Co. to buy 50% stake in KMI pipeline system for $1.47B

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Essential Energy Insights - January 2021


Southern Co. to buy 50% stake in KMI pipeline system for $1.47B

Afterbuying the largest natural gas utility business in the country, is diving furtherinto the gas industry with plans to acquire a 50% stake in 's 7,600-mileSouthern Natural Gas Co.LLC pipeline system for $1.47 billion.

Thepipeline connects gas supply regions in Texas, Louisiana, Mississippi, Alabamaand the Gulf of Mexico to consuming markets across the Southeast. Kinder Morganwould continue to operate the system, which is a main source of natural gas forthe fast-growing demand in Alabama, Georgia and South Carolina.

Includingexisting debt at Southern Natural Gas, the transaction places the pipelinesystem's enterprise value at about $4.15 billion. The companies hope to closethe deal in the third quarter or the early in the fourth quarter. Southern saidit plans to finance the purchase and any additional growth opportunities in a"credit-supportive manner."

ForKinder Morgan, the deal offers another chance for the pipeline operator to trimits debt and help rebuild a balance sheet that has been a source of concern forequity analysts and investors.

The companies,two of the largest in the energy industry, said they will collectively pursuegrowth opportunities. Kinder Morgan's management will hold a conference call todiscuss the venture at 8:30 a.m. ET on July 11.

SouthernCo. closed its $12billion deal for the gas utility conglomerate on July 1, creatingthe second-largest energy utility by customer count in the U.S. Southern CEOThomas Fanning cited the AGL deal as part of the justification for the pipelineventure.

"This transaction is consistent with the infrastructuredevelopment strategy we have discussed for well over a year. The company'sstrategic venture with Kinder Morgan, combined with our recent additions,AGL Resources and PowerSecure, underscore Southern Company's leadershipposition in electricity and natural gas and our commitment to developingAmerica's energy infrastructure," Fanning said. "Our new ownershipstake in SNG will position Southern Company for future growthopportunities and enhanced access to natural gas, which are expected to benefitcustomers and investors alike."

Jones Day, Gibson Dunn & Crutcher LLP, TroutmanSanders LLP and Balch & Bingham LLP are serving as legalcounsel to Southern, and Bracewell LLP and Weil Gotshal& Manges LLP are serving as legal counsel to Kinder Morgan.