Merger with Inergy doubles Suburban’s retail business

June 1, 2012 By    

Inergy LP agreed to sell its retail propane operations to Suburban Propane Partners LP for about $1.8 billion, the companies announced. The transaction is expected to close in the fourth quarter of this year.

Inergy conducts its propane operations in 33 states from 338 customer service centers. Suburban’s acquisition gives it about 600,000 more propane customers and adds 326 million retail propane gallons to the company’s existing 600,000 customers and 298 million retail propane gallons sold.

The acquisition also will make Suburban the third largest propane retailer in the United States behind AmeriGas Propane and Ferrellgas. Suburban previously ranked fifth on the Top 50 Propane Retailers list, behind Heritage Propane and Inergy, in retail gallons sold. Heritage was sold earlier this year to AmeriGas.

“The merging of solid propane operations like Inergy and Suburban will mean a larger, stronger and more efficient propane marketer with a commitment to delivering outstanding customer service,” says John Sherman, Inergy president and CEO. “The industry remains extremely fragmented. So I think you can expect to see continuing consolidation at all levels in the industry among the majors, as well as among smaller regionals and independent marketers.”

For Suburban, the acquisition doubles the size of the company’s retail business and expands it into 11 new states.

“We seek to combine the best of both companies, leveraging our investments in people and technology across a broader service territory and customer base,” says Michael J. Dunn Jr., Suburban president and CEO, in a company statement.

Under terms of the agreement, Inergy will receive $600 million in Suburban common units. Suburban will offer to exchange Inergy’s outstanding senior notes for up to $1 billion of new Suburban senior notes and $200 million in cash. Also, Inergy has agreed to distribute about 13.7 million of the Suburban common units it receives to Inergy unit holders.

“Our unit holders will have the opportunity to participate in the benefits of the propane combination, and Inergy will focus on its midstream growth strategy,” Sherman says. “This transaction accelerates the transformation we began last year when we started the separation of our business units.”

Inergy Midstream LP took a next step less than three weeks after the Suburban-Inergy announcement, acquiring US Salt LLC, whose salt caverns can be developed into usable natural gas storage. US Salt is located just outside Watkins Glen, N.Y.

“The acquisition complements our existing natural gas and [natural gas liquid] storage and transportation platform nicely,” Sherman says in a company statement. “This transaction demonstrates our commitment to growing [Inergy Midstream’s] distributable cash flow and delivering on the growth expectations for the company.”

Sherman adds that the Inergy Services business unit will remain with Inergy to serve as a complement to the company’s midstream business.

“Not only will this business unit continue to work with Suburban’s retail operations, but Bill [Gautreaux] and his team will continue to serve the many other independent propane marketers they have served for many years,” he says.

About the Author:

Kevin Yanik was a senior editor at LP Gas Magazine.

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