Dominion Resources Inc. of Richmond, Va., is acquiring Louis Dreyfus Natural Gas Corp., Oklahoma City, in a $2.3 billion cash, stock, and assumed debt deal that will increase Dominion’s natural gas reserves 60% and expand its fast-growing energy trading business, company officials said Monday.
Acquisition of Louis Dreyfus Natural Gas, one of the largest US independent natural gas companies, is expected to be completed in the fourth quarter. With the close of that deal, Dominion’s E&P unit will own proved reserves in excess of 4.6 tcf of gas equivalent and will produce more than 450 bcf annually, up more than 40% over its current production.
Added to Dominion’s existing 22,000-Mw electric generation portfolio, the deal will give the broad-based energy company more than 3 trillion btus of daily energy production capability, officials said.
“The acquisition of Louis Dreyfus Natural Gas is a natural fit economically, strategically, and geographically,” said Thomas E. Capps, chairman, president, and CEO of Dominion.
“From an economic and strategic standpoint, quality of assets matters in the natural gas business,” he said. “Louis Dreyfus Natural Gas’s long-lived reserves and extensive leasehold acreage complement the quality of Dominion’s existing natural gas properties. The growth it provides to our base of physical assets is consistent with our strategy of ‘trading around assets’ and provides an expanded physical platform to fuel our growing natural gas trading and marketing business.”
Capps said the transaction also provides Dominion an additional upside from the positive supply and demand fundamentals that expected in coming years.
He said, “Geographically, Louis Dreyfus Natural Gas’s drilling program in the Permian Basin, Mid-Continent, and Gulf Coast complements our own operations.”
Still, Capps said, “The goal in acquiring Louis Dreyfus Natural Gas is to enhance our portfolio of fully integrated energy businesses, not to become a bigger E&P company. We’re still comfortable with our target of a 25% earnings contribution over the long term from our E&P operations.”
Dominion, already one of the nation’s largest traders of gas and electricity, expects the Louis Dreyfus acquisition to help double its energy trading and sales volumes above last year’s level within 3 years. Company executives expect annual gas trading volumes to increase to 2.4 tcf from 1.2 tcf, and for electricity trading volumes to grow to 265 million Mw-hr/year from 136 million Mw-hr.
Under terms of the agreement unanimously approved by both companies’ boards of directors, Dominion will acquire all of Louis Dreyfus Natural Gas’ outstanding shares for a per-share price of $20 cash and a fixed exchange ratio of 0.3226 shares of Dominion common stock. Dominion will issue to Louis Dreyfus shareholders some 14.4 million shares of its stock, valued at approximately $900 million based on Friday’s closing price of $62.63/share, plus $890 million in cash.
Dominion also will assume about $505 million of Louis Dreyfus’ debt.
Subsidiaries of S.A. Louis Dreyfus et cie, which as a group own and control more than 42% of Louis Dreyfus’ outstanding shares, have committed by separate agreement to vote their shares in favor of the Dominion acquisition.
Meanwhile, Dominion officials reaffirmed they expect the company to meet or exceed 2001 earnings guidance of about $4.15/share or better, and 2002 earnings guidance of $4.85-$4.90/share on a stand-alone basis.
The Louis Dreyfus acquisition is expected to be immediately accretive by at least 5¢/share to current 2002 earnings expectations, with its contributions to grow in subsequent years, said officials.
Louis Dreyfus Natural Gas has already hedged a substantial portion of its expected 2002 production.
In connection with the proposed transaction, Louis Dreyfus Natural Gas agreed to sell 48 bcf of gas to Dominion at prevailing gas futures prices in the next calendar year.
The proposed acquisition is subject to approval by Louis Dreyfus Natural Gas shareholders and the customary regulatory reviews. Louis Dreyfus Natural Gas agreed to pay a $70 million breakup fee if the purchase is not consummated.
Mark E. Monroe, president and CEO of Louis Dreyfus Natural Gas, said, “This transaction benefits our shareholders by providing an attractive near-term return and opportunity to participate with a larger company involved in more facets of the energy business.”
Louis Dreyfus Natural Gas will be merged into Dominion’s subsidiary, Consolidated Natural Gas Co. Dominion anticipates retaining most of Louis Dreyfus Natural Gas’s 400 employees.
Dominion will finance the cash portion of the transaction with a bridge loan facility, which will be replaced with proceeds from a combination of permanent debt financing and equity hybrids.