AmeriGas is buying a major propane distributer that operates across 41 states in a $2.8 billion deal that will double its customer base by one million households. (image: dealbook.nytimes.com)
The country’s largest propane retailer will double its customer base and add over 500 million gallons to its distribution network in a $2.8 billion deal, reuters.com reports.
AmeriGas Partners L.P. has announced it will buy Energy Transfer Partners L.P.’s propane business in the landmark deal which is due to be finalised by early next year. The agreement will also free Energy Transfer to focus on its core natural gas pipeline business, which is booming as new drilling technology unlocks a growing supply of oil and gas that needs to be moved between markets, wsj.com reported.
Unit holders of Energy Transfer, which had been one of the largest propane marketers in the US with operations in 41 states, will receive about $1.5 billion in cash and about $1.3 billion in AmeriGas common units under the deal. Analysts said Energy Transfer had been trying to sell its propane business for years but been unable to find someone to pay what the company considered a fair price.
The company’s second-quarter profit surged this year on higher natural gas and retail propane sales. Both companies’ shares traded higher after the deal was announced this week. It will add over one million retail propane customers to AmeriGas’s nationwide distribution operations. AmeriGas, which is already the largest retail propane company in the US., is 44 percent owned by gas distributor UGI Corp.
About 5 percent of US households use propane for heating. The US Energy Information Administration expects propane prices to rise this winter. National propane stocks are at their lowest pre-heating season level since 1996 on the back of strong international export demand. This is likely to be a factor in propane prices as demand picks up during winter with reserve stocks low.
“We can definitely see some positives in terms of quality of their business versus AmeriGas existing territory…propane companies are looking at jacking up margins they are making on every gallon they sell as they have so much pricing power,” Morningstar analyst Mark Barnett told Reuters.