Lon R. Greenberg, UGI's chief executive and chairman of AmeriGas, described the acquisition as a "transforming transaction."
Though the combined company would be twice the size of the next-largest propane distributor, AmeriGas would still control only about 16 percent of the highly fragmented market.
Propane, a by-product of natural gas processing and petroleum refining, is also known as LP, or liquid petroleum. About 5 percent of American households use it for heating, and it is used for industrial and agricultural applications in areas unserved by natural gas distribution systems. LP is also sold as bottled gas for backyard grills.
The market for propane is mature, and analysts expect no growth in coming years. So companies such as AmeriGas have adopted strategies to grow by buying and integrating other distributors, and extracting greater profits by scaling up.
"This is the deal we've hoped to put together for a long time," Eugene V.N. Bissell, the president and chief executive officer of AmeriGas, told analysts in a conference call Monday.
Although the propane business is fragmented, residential customers are considered "sticky" and reluctant to defect because most rent their fuel tanks and have to incur a fee if they want to switch dealers. Switching to other fuels - electricity or fuel oil - is expensive.
The combined company will have 1,640 locations in 48 states. About 200 of Heritage's 440 sites are in areas already covered by AmeriGas, and those locations would likely be consolidated.
AmeriGas officials said they would keep the Heritage brand name in areas were it is dominant.
Heritage operates in this region under its own name, as well as the names of companies it has acquired: Shaner Propane in Pottstown; Lehigh Valley Propane in Kutztown; Metro Lift Propane in Newport, Del., and Paradee Gas Co. in Dover, Del. Heritage also has an outlet in Millville, N.J.
