Southern Company and AGL Resources have agreed to a $12 billion deal that would make the natural gas giant a new Southern operating company and puts the electricity company into the growing natural gas business.

Combined territory map (click to enlarge – mobile-friendly)

The boards of directors of both companies said today they have a definitive merger agreement to create America’s leading U.S. electric and gas utility company. If finalized, AGL Resources will become a new wholly-owned subsidiary of Southern Company.

Alabama Power is a Southern Company subsidiary with 1.4 million customers, 78,000 miles of power lines and 13,000 megawatts of electric generating capacity. Southern Company also owns Southern Power, which owns 3,175 megawatts of natural gas generating capacity in Alabama.

In Alabama, AGL Resources owns a liquefied natural gas facility in Trussville that delivers about 60,000 gallons per day, its first such facility dedicated solely to the merchant market.

Southern Company with AGL Resources under its umbrella would create a new electric and natural gas utility with approximately 9 million utility customers in nine states. It is Southern Company’s largest deal to diversify its utility holdings.

“As America’s leader in developing the full portfolio of energy resources, we believe the addition of AGL Resources to our business will better position Southern Company to play offense in supporting America’s energy future through additional natural gas infrastructure,” Southern Company CEO Thomas A. Fanning said. “For some time, we have expressed our desire to explore opportunities to participate in natural gas infrastructure development.”

Under the terms of the agreement, AGL Resources’ shareholders would receive $66 in cash for each share of common stock, a 36.3 percent increase in this month’s average trading price. Southern Company expects an increase in earnings the first year after the acquisition closes.

The new company would become the second-largest utility company in the U.S. with:

• 11 regulated electric and natural gas distribution companies;
• 9 million customers with a projected regulated rate base of about $50 billion;
• Nearly 200,000 miles of electric transmission and distribution lines and more than 80,000 miles of gas pipelines;
• Generating capacity of about 46,000 megawatts.

“With AGL Resources’ experienced team operating premier natural gas utilities and their investments in several major infrastructure projects, this is a natural fit for both companies,” Fanning said. “Moreover, this transaction is expected to position Southern Company to enhance earnings growth while maintaining a strong balance sheet and improving cost-effectiveness.”

The Southern Company system is known for regularly outperforming industry peers in reliability, with prices below the national average and the highest customer satisfaction among peer utilities as measured by the Customer Value Benchmark survey. Alabama Power regularly tops such rankings along with other Southern Company operating companies Georgia Power, Mississippi Power and Gulf Power.

“AGL Resources’ management team and board of directors wholeheartedly support this transaction, and we believe it will provide new opportunities and enhanced value for our shareholders, customers and employees,” AGL Resources CEO John W. Somerhalder II said. “Importantly, both companies are committed to safely delivering clean, reliable, affordable energy while providing customers with world-class service. The respective models of Southern Company and AGL Resources focus on the fundamental values of safety, operational excellence and environmental stewardship.”

Fanning said Southern Company and AGL Resources share a focus on community involvement.

“We believe this combination will also advance our customer-focused business model,” he said. “AGL Resources and Southern Company have long been leading corporate citizens and the combined company will further our support of all of the communities we serve.”

Somerhalder agreed.

“We’ve found a strong partner in Southern Company with its complementary businesses, excellent reputation and shared values,” he said. “They have committed to continuing our tradition of community and philanthropic support and exceptional service to customers. We look forward to working with Southern Company to complete the transaction as expeditiously as possible and ensure a smooth transition.”

For more information about the combined Southern Company and AGL Resources, visit doingenergybetter.com.