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Hedge Funds Cash In As Southern Co (SO) Acquires AGL Resources Inc. (GAS) For $12 Billion

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Southern Co (NYSE:SO) and AGL Resources Inc. (NYSE:GAS) have joined hands to form one of the leading U.S. electric and gas utility companies. According to an announcement released this morning, Southern Co will acquire AGL Resources for an enterprise value of $12 billion, including an equity value of nearly $8 billion. The shares of AGL Resources Inc. (NYSE:GAS) are up by 26.87% after the announcement, whereas Southern Co (NYSE:SO) is down by 2.88% in the morning session. The existing shareholders of AGL Resources will receive $66 for every common share of the company, a premium of 38% on the August 21 closing price of AGL Resources. The combined company will have approximately nine million utility customers across nine different states. The transaction is likely to close in the second half of 2016. AGL Resources will operate as a subsidiary of Southern Co (NYSE:SO) while maintaining its own corporate headquarters and management team.

Thomas A. Fanning, CEO, Chairman, and President of Southern Co (NYSE:SO), said, “As America’s leader in developing the full portfolio of energy resources, we believe the addition of AGL Resources to our business will better position Southern Company to play offense in supporting America’s energy future through additional natural gas infrastructure.”

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The shares of AGL Resources Inc. (NYSE:GAS) are now up by 9.52% year-to-date and are trading at $61.01 as of the reporting period. The smart money tracked by Insider Monkey maintained a slightly bullish outlook of the company, with 28 hedge funds holding positions worth $205.07 million in the company at end of the second quarter. The number of hedge funds maintaining stakes in the company increased by four in comparison with the previous quarter. A drop of 5.45% in the aggregate holdings during the second quarter can be attributed to the drop of 6.22% in the share price of AGL Resources during that time. The smart money held a similar sentiment for the shares of Southern Co (NYSE:SO), having 19 hedge funds maintaining stakes worth $240.46 million in the company. These figures were better than last quarter net positions of $228.90 million from 21 hedgies, especially after considering the a drop of 5.37% in the share prices of Southern Co during the second quarter.

We don’t just track the latest moves of funds. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research, with backtests for the period between 1999 and 2012 and forward testing for the last 2.5 years. The results of our analysis show that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests. Moreover, since the beginning of forward testing in August 2012, the strategy worked brilliantly, outperforming the market every year and returning 118%, which is more than 60 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

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