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NEW YORK (The Deal) -- Atlanta-based utility Southern Company (SO) - Get Southern Company Report said Monday it's acquiring crosstown company AGL Resourcesundefined for $12 billion, including $8 billion in equity, creating the largest U.S. utility by customers after Exelon (EXE) .

AGL shareholders will get $66 for each of their shares, a 37.9% premium over Friday's closing price of $47.86 and a 36.3% premium over AGL's average stock price over the last 20 trading days. AGL's stock jumped 26.7% on the news to $60.64 in morning trading while Southern's stock slid 3.3% to $44.27.

Southern has committed financing from Citigroup (C) - Get Citigroup Inc. Report Global Markets, and plans to have long-term financing before closing, which is expected in the second half of next year. Management said on a conference call that the permanent financing would be a mix of debt and equity, with equity of around $3 billion.

The deal has to be approved by AGL shareholders along with federal and state regulators.

Southern said the deal will better position the companies to provide necessary natural gas infrastructure to meet customers' growing energy needs.

The combination will own 11 regulated electric and natural gas distribution companies providing service to 9 million customers with a projected regulated rate base of around $50 billion, nearly 200,000 miles of electric transmission and distribution lines and about 80,000 miles of gas pipelines and generating capacity of around 46,000 megawatts.

Southern expects the deal to add to earnings per share in the first full year after the close, accelerate its expected long-term earnings per share growth to 4% to 5%, preserve its financial profile and further support investment in its diversified energy platform and enhance its ability to increase its dividend's growth rate.

Southern Chairman, CEO and President Thomas Fanning hinted last February at investing in natural gas pipelines to better meet the needs of its utilities. "With AGL Resources' experienced team operating premier natural gas utilities and their investments in several major infrastructure projects, this is a natural fit for both companies," he said in today's statement.

Fanning added that the combination will position the company to enhance earnings growth while keeping a strong balance sheet and improving cost effectiveness. He also said it will advance its customer-focused business model, with AGL and Southern long being "leading corporate citizens," with Southern known for regularly outperforming industry peers in reliability with prices below the national average, and the highest customer satisfaction among peer utilities as measured by the Customer Value Benchmark survey.

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"We view this as a growth platform and expect to execute on that platform," Fanning said on the call.

AGL Chairman and CEO John Somerhalder II said AGL's management and board support the transaction, believing it will provide "new opportunities and enhanced value for our shareholders, customers and employees."

Fanning said on the call that he and Somerhalder had dinner to talk about the potential for natural gas infrastructure opportunities they could pursue together, which progressed into merger talks. "This is a company that had a terrific level of financial integrity and 6% to 9% growth through already approved riders associated with natural gas pipelines," he said. "We thought AGL was undervalued."

AGL will continue to keep its own management and board and its own headquarters in Atlanta. Fanning said on the call he wasn't prepared to talk about synergies yet. "It's not synergy driven, but growth driven," he said.

When asked by an analyst, Fanning said the deal's breakup fee is 2.5% of equity, or $201 million.

AGL has often been named as a potential takeover target as utilities look for ways to expand in a low-growth industry. Others have included Pinnacle West Capital  (PNW) - Get Pinnacle West Capital Corporation Report, Vectren (VVC) , Empire District Electric (EDE) , Scana (SCG) , Southwest Gas (SWX) - Get Southwest Gas Holdings, Inc. Report, Chesapeake Utilities (CPK) - Get Chesapeake Utilities Corporation Report, El Paso Electric (EE) - Get El Paso Electric Company Report and PNM Resources (PNM) - Get PNM Resources, Inc. Report.

Teco Energy (TE) said last month it had hired Morgan Stanley (MS) - Get Morgan Stanley Report to advise it on strategic alternatives, including a possible sale.

The utilities sector has been fertile ground for M&A in the last year or two, with Exelon agreeing to buy Pepco Holdings for $6.8 billion in cash and Laclede Group purchasing Alabama Gas from Energen (EGN) for $1.6 billion (AGL had also been rumored to be interested in picking up Alabama Gas.)

AGL likewise has been busy on the deals front in the past few years. In January 2013, it bought the retail services business of NiSource Inc. for an undisclosed sum. And in September of last year it inked an agreement with Dominion Resources (D) - Get Dominion Energy Inc Report, Duke Energy (DUK) - Get Duke Energy Corporation Report, Piedmont Natural Gas (PNY) to build the "Atlantic Coast Pipeline," a 550-mile natural gas pipeline spanning from West Virginia through Virginia and into eastern North Carolina. AGL will own 5%, while Piedmont will have 10%, Dominion will have 45% and Duke will have 40%.