UGI Corp (UGI) Acquires South Jersey's Natural Gas Business

UGI Energy Services LLC, a subsidiary of UGI Corporation (NYSE:UGI) , announced that it has purchased the retail natural gas business of South Jersey Industries, Inc. (NYSE:SJI) including Open Flow Energy of South Jersey Energy Company, which is its unit. The transaction was effective Dec 1, 2018.

Per the agreement, UGI Corp bought all the 2,500 commercial and industrial customer contracts of South Jersey Energy including supply service to nearly 6,000 locations. The strategic acquisition will allow the company to further grow its retail natural gas business coupled with an already strong commercial and industrial retail business in the mid-Atlantic region.

UGI Corp’s Inorganic Growth Strategy

UGI Corp has a strategy of building the company’s business by focusing on and utilizing its core competencies to accelerate both internal and inorganic growth. The company has invested nearly $594.3 million of capex for fiscal 2018 in addressing the infrastructural need and strategic acquisition. It expects to spend roughly $1.2 billion and $743 million in the next four years and 2019, respectively, to strengthen its existing operations.

During fiscal 2017, the company completed the buyout of Dutch energy marketer DVEP Investeringen B.V. It also acquired Totalgaz Italia S.r.l. (now known as UniverGas Italia S.r.l.) LPG distribution business in Italy during early fiscal 2018. This consolidation has led to increasing the company’s customer base by approximately 65,000 in the northern region of Italy. These transactions along with other integrations expanded the company’s existing energy marketing business profile in the European region.

Also, in fiscal 2018, the company completed the purchase of Hunlock Energy, LLC, a 44-megawatt natural gas-fired peaking turbine in Luzerne County, PA.

Merger & Acquisition in Utility Space

Utility sector operators don’t shy away from merger and acquisition (M&A) activities to supplement organic growth. In addition to lending operations a greater scale and scope, such favorable measures lead to cost synergies and better utilization of resources. The larger the companies are, the more access those get to capital resources, essential for vital infrastructure upgrades.

We believe that in a mature energy market like the United States, M&As represent a surefire recipe of success to enhance the players’ market share.

Beginning 2018, SCANA Corporation (NYSE:SCG) entered into a merger agreement with Dominion Energy (NYSE:D) . Per the accord, each stock holder of SCANA will likely receive 0.669 shares of Dominion. Considering Dominion’s assumption of $6.7 billion debt for SCANA, the transaction is worth approximately $14.6 billion.

Price Movement

Over the past 12 months, shares of UGI Corp have rallied 18%, outperforming its industry’s rise of 4.6%.

Zacks Rank

UGI Corp currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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