PNY Piedmont Natural Gas Company, Inc.

By Rebecca Smith 

Duke Energy Corp. said it would buy Piedmont Natural Gas for $4.9 billion, as the electric utility tries to bulk up on gas assets that offer reliable profit margins and good growth prospects.

The deal marks the second time this year that an electric utility has agreed to buy a gas-distribution company already operating on its home turf. In August, Southern Co. agreed to buy AGL Resources Inc. for $8 billion; both companies are based in Atlanta.

Duke and Piedmont are based in Charlotte, N.C. and deliver natural gas to homes and businesses in different regions. But Duke primarily owns electric utilities that serve customers in seven states in the Midwest and Southeast.

Duke's all-cash acquisition price of $60 a share for Piedmont amounts to a 40% premium to that stock's closing price on Friday. Similarly, Southern's $66-a-share buyout of AGL represents a 38% premium for that company.

Duke and Southern are willing to pay high premiums for the regulated gas companies because they offer reliable returns and a way to capitalize on the glut of natural gas. U.S. utilities anticipate only modest growth in electricity sales in the next few years, but gas demand is expected to be robust. That demand will be particularly 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 already are partners in the $5 billion Atlantic Coast Pipeline project, a 550-mile pipeline from West Virginia to North Carolina. Buying Piedmont will also help Duke convert more of its power plants to run on gas instead of coal, the company said.

Piedmont was spun off by Duke in 1951, so the purchase will take the gas company full circle. If the merger is completed next year, as executives of the two companies expect, it will triple the number of gas customers served by Duke to 1.5 million.

Piedmont, which will be run as a subsidiary and retain its name, will add one million gas customers in the Carolinas and Tennessee to the 500,000 existing gas customers that Duke serves in Ohio and Kentucky.

Lynn Good, Duke's chief executive, said Monday that 90% of the company's assets will earn regulated returns once the Piedmont transaction is completed.

That is a turnabout from 15 years ago when Duke and other utilities were rapidly expanding into newly deregulated states, including California, to take advantage of what appeared to be unfettered profits. Duke became one of the biggest owners of deregulated power plants and a major energy trader, but a short period of very high profits was over by 2003.

In recent years, Duke has focused on expanding its footprint, buying Cinergy Corp. of Ohio in 2006 and Progress Energy Inc. of North Carolina in 2012.

Piedmont's stock rose 36.8% on the announcement, while Duke's stock fell 3.3% by midday. Before the announcement, Piedmont's stock was up 17% for the past three months and Duke's stock was up nearly 3%.

Ezequiel Minaya contributed to this article.

Write to Rebecca Smith at rebecca.smith@wsj.com

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(END) Dow Jones Newswires

October 26, 2015 15:51 ET (19:51 GMT)

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