Gas Natural CEO Cashes in Shares with a Secondary Offering

Gas Natural Inc. (EGAS) has been expanding through the clever acquisition of other local natural gas utilities. This unique roll-up approach to business has been CEO Richard Osborne’s strategy for extending the company’s client base beyond the original Montana and Wyoming holdings. Gas Natural now owns utilities in Maine, Pennsylvania, Ohio, and North Carolina, and a new secondary offering announced last week should provide the capital necessary for a 22% boost in overall service customers.

The last major acquisition took place in January 2010 and brought the Gas Natural client base up to its current 61,000 count. The first quarter income following the expansion reported an 89% increase, which helped to cover the cost of the acquisition, while shareholders enjoyed a 32% rise in share earnings compared to last year.

As EGAS grows, Osborne is looking to diversify his own holdings. The acquisition in January involved the purchase of utilities that were privately owned by Osborne, thus he received the 1.6 million new shares generated in the acquisition. This holding gave him ownership of 40% of the company, and the newest secondary offering will allow him to sell 1.0 million of the shares, reducing his stake to roughly 19%. While it may look like these recent business decisions have served Osborne’s personal interests, shareholders should not be alarmed.

The increase in dividend expenses caused by the dilution of shares through the merger and secondary offering is more than compensated for by the growth in income. In fact, EGAS shares have risen in value by 15% since January and continue to carry a 4.6% yield.

Gas Natural has no further plans for expansion this year; instead, they are focusing on reaching their $14 share target within the next two years. This is a reasonable financial goal based on the current 4.6% yield, and may lead to higher dividends for shareholders in the near future. Overall, the insider selling and secondary offering were handled responsibly and in a timely manner, which will only serve to strengthen the company and build confidence among its investors.