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Kinder Morgan-Southern Company Natural Gas Pipeline Deal

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Kinder Morgan, Inc. (KMI - Free Report) and Southern Company (SO - Free Report) have entered into a natural gas pipeline venture intended to enhance both companies' leadership in energy infrastructure development.

The combination of Southern Company’s leading position as a natural gas consumer and distributor, and Kinder Morgan’s expertise in natural gas pipeline development and operations, will substantially enhance the energy infrastructure the U.S. in the future.

Per the deal, Southern Company acquired a 50% interest in the Southern Natural Gas (SNG) pipeline system. Kinder Morgan, the operator of the pipeline system will continue with its current responsibilities.

Moreover, the agreement requires the companies to collaborate for definite growth opportunities to develop natural gas infrastructure for the strategic venture.

The SNG pipeline system, which extends over a total length of 7,600 mile, links natural gas supply basins in Texas, Louisiana, Mississippi, Alabama and the Gulf of Mexico to markets in Louisiana, Mississippi, Alabama, Florida, Georgia, South Carolina and Tennessee. SNG pipeline system is a major transporter of natural gas to Alabama, Georgia and South Carolina, which are part of one of the fastest-growing natural gas demand regions in the United States.

Including the existing debt, the total enterprise value of SNG pipeline system is about $4.15 billion. Therefore, the transaction value is equivalent to $1.47 billion for Southern Company’s share of 50% equity interest. Southern Company expects to finance not only the initial purchase but also other related future growth opportunities in a credit-supportive manner.

The transaction is subject to the notification and clearance and reporting requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The companies anticipate the deal to conclude in third quarter or early fourth-quarter 2016.

Kinder Morgan holds a Zacks Rank #2 (Buy). Other well-ranked players from the energy sector are FutureFuel Corp. and ReneSola Ltd. (SOL - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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