CXG Cnx Gas Corp

Consol Energy Inc. (CNX) announced plans to buy the remaining 17% of CNX Gas Corp. (CXG) it doesn't already own for about $965 million. The coal company said it intends to sell at least $4.5 billion worth of stock and debt to help fund that purchase as well as the pending $3.48 billion acquisition of Dominion Resources Inc.'s (D) natural-gas business.

The fourth-largest U.S. coal producer said Sunday night that T. Rowe Price Group Inc. (TROW) has agreed to tender its 9.5 million shares of CNX Gas--or about 37% of what Consol doesn't already own--to a tender offer Consol expects to launch at a price of $38.25 a share. That's a 24% premium to Friday's closing price. The outstanding stake in Consol is about $965 million.

To finance that planned purchase and the deal announced a week ago for Dominion's natural-gas assets--which are similar to those held by CNX--Consol said Monday that it would sell at least $1.75 billion worth of shares and $2.75 billion of seven- and 10-year notes. Consol's market value is about $8.5 billion.

Consol had said March 15, when it announced the Dominion deal, that it was considering acquiring the shares of CNX Gas it didn't already own. This sent CNX Gas shares up 16% that day.

That company's stock recently rose 23% at $37.89. The stock is up 45% since March 12, the trading day before Consol said it probably would make the purchase. Meanwhile, Consol's shares slipped 2.1% to $44.60.

Simmons & Co. International analyst Pearce Hammond said the deal for CNX Gas wasn't a surprise, but the big premium may have been. The company did dial back the amount of equity it plans to raise, increasing the amount of debt instead. He said this was probably a smart move, although a lot of dilution still will remain.

The biggest problem Consol will face from making a bid to enter the gas market is that investors might say they can diversify their own portfolios and don't want the company to do it for them, he said. Pure-play investors in gas or coal may not want to own the company, leaving it stuck in a no-man's land, he said.

Meanwhile, the Dominion deal is seen as helping Consol diversify away from coal and mitigate the impact of potential carbon regulation. The deal would add to its existing gas operations and make Consol one of the largest participants in the Marcellus shale formation, a huge gas field below West Virginia, Ohio, Pennsylvania and New York.

Tudor Pickering & Co. Securities analyst Brandon Blossman said it was largely a foregone conclusion that Consol would buy the rest of CNX Gas, since it would be hard to figure out how they'd integrate the Dominion purchase without owning all of it.

Simmons's Hammond agreed, saying it would be much more complicated to integrate that transaction if the public part of CNX Gas remains outstanding.

-By Kerry Grace Benn and Nathan Becker, Dow Jones Newswires; 212-416-2353; kerry.benn@dowjones.com

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