On Monday, Duke Energy Corp. said it will spend about $4.9 billion in cash to acquire Piedmont Natural Gas, as the electric utility tries to build on gas assets that offer reliable profit margins and good growth prospects.
This is the second time in this year that Duke Energy has agreed to acquire a gas-distribution company already operating on its home turf. Earlier in August, Southern Co. agreed to buy AGL Resources Inc. for $8 billion; both companies is based in Atlanta.
Based in Charlotte, N.C., Duke, and Piedmont deliver natural gas to homes and businesses in different regions. But Duke largely owns electric utilities that serve consumers in seven states in the Midwest and Southeast.
Piedmont shareholders will receive $60 in cash for each share of common stock that amounts to a 42% premium to Friday’s closing price. Duke Energy Corp. will also assume an estimated $1.8 billion in Piedmont debt.
U.S. utilities expect only modest growth in electricity sales in the coming few years, but gas demand is expected to be thriving. That demand will be primarily strong in eastern regions where new natural gas pipelines are under construction, which will allow gas to replace coal and heating oil for power production and residential uses.
Duke and Piedmont are key partners in the $5 billion Atlantic Coast Pipeline project, a 550-mile major natural gas pipeline from West Virginia to North Carolina. Piedmont acquisition will also help Duke convert more of its power plants to operate on gas instead of coal, the company said.
The deal is expected to close by the end of next year if state regulators and Piedmont’s stockholders approve and the deal passes antitrust review by the Federal Trade Commission and the Justice Department. Once the transaction is completed, it will triple the number of gas customers served by Duke Energy to 1.5 million.
Piedmont, which will be run as a subsidiary will keep its name and maintain its headquarters in Charlotte, North Carolina. One of its directors will join Duke’s board. It will become a unit of Duke Energy.
Duke Energy Chief Executive Lynn Good said Monday that 90% of the company’s assets will earn regulated returns once the Piedmont deal is completed.
In the last few years, Duke has been working towards expanding its footprint, purchasing Cinergy Corp. of Ohio in 2006 and Progress Energy Inc. of North Carolina in 2012.
On the announcement of the deal, Piedmont’s stock surged nearly 37% on the announcement, while Duke’s stock fell 2% to $72.25 in 4 p.m. trading.