Northeast, NSTAR Will Merge to Create New England's Top Utility

Northeast Utilities, New England’s largest utility owner, agreed to buy energy-delivery company NSTAR for $4.17 billion of stock, adding cash flow to help fund expansion and increase the dividend.

Under the agreement, described by the companies as a merger of equals, each share in NSTAR will be worth 1.312 shares of Springfield, Massachusetts-based Northeast, according to a joint statement today. Northeast’s shareholders will own 56 percent of the new entity, with the purchase representing a 1.9 percent premium over NSTAR’s Oct. 15 closing price.

The combined company, to be called Northeast Utilities, will provide power and gas to more than half of New England’s customers, with almost 3.5 million homes and businesses in three states. The companies will each nominate seven members to the board of the combined business, with a nominee from Northeast Utilities serving as lead trustee.

“The combination of the two will enable us to grow dividends and earnings more than each of us could do by ourselves,” Thomas J. May, 63, chief executive officer of Boston-based NSTAR and CEO of the new company, said today in an interview.

Northeast’s dividend will rise to match the payout at NSTAR, the companies said. At current levels, that would be about 20 percent, to $1.22 a share annually from $1.025, the companies said during a conference call. NSTAR may raise its dividend further before the deal closes, said Charles Shivery, CEO of Northeast.

Source: Nstar via Bloomberg

NSTAR CEO Thomas J. May, seen here, who will also be CEO of the new company said, “Merging with Northeast Utilities provides more diverse, stable and higher earnings and dividend growth than NSTAR would have achieved on its own.” Close

NSTAR CEO Thomas J. May, seen here, who will also be CEO of the new company said,... Read More

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Source: Nstar via Bloomberg

NSTAR CEO Thomas J. May, seen here, who will also be CEO of the new company said, “Merging with Northeast Utilities provides more diverse, stable and higher earnings and dividend growth than NSTAR would have achieved on its own.”

Northeast’s Benefit

Northeast fell 28 cents to $30.42 at 4:02 p.m. in composite trading on the New York Stock Exchange. NSTAR fell 23 cents to $39.30.

The companies said on an investor conference call today the deal will increase opportunities for economic growth in New England.

“I just don’t see it,” said Michael Worms, a New York- based analyst at BMO Capital Markets. Worms rates Northeast shares “market perform” and owns none. Northeast and NSTAR are already “major players” at building high-voltage lines across the region, he said.

“The benefit is to Northeast with the increased dividend,” Worms said. “Northeast will benefit from the NSTAR cash flow, eliminating a planned equity offering in 2012.”

Shivery and May said they began talking about a combination as they pursued construction of a $1.1 billion high-voltage line to deliver power from hydroelectric dams in Quebec to their New England utilities, a joint venture 75 percent owned by Northeastern and 25 percent by NSTAR.

Regulatory Approval

Valued at $6.84 billion in stock and assumed debt, the transaction is the third-largest U.S. power company deal announced this year, following the planned $9.22 billion takeover by FirstEnergy Corp. of Allegheny Energy Inc. and PPL Corp’s $7.63 billion purchase of E.ON AG’s Kentucky utilities, according to data compiled by Bloomberg.

Some jobs may be eliminated, the companies said today in a filing. Cost cutting will be done by attrition, which should make the deal easier to sell to Massachusetts regulators, Shivery, 65, who’ll be chairman of the new company, said in the interview.

The deal is expected to close within 12 months, subject to approval by shareholders as well as Massachusetts and federal regulators, the companies said.

Massachusetts requires that the transaction have “no net harm” to customers there, May said during the call. The companies have discussed the deal with the governors of Massachusetts, Connecticut and New Hampshire, he said.

Con Ed Acquisition

Under Shivery’s predecessor, Northeast agreed to sell itself to Consolidated Edison Inc., owner of New York City’s utility, for $7.5 billion in 1999. The deal fell apart in 2001, after Con Ed said Northeast took on too much risk with long-term power contracts.

About $9 billion of new spending is planned by the combined company over the next five years, Shivery said on the call. The combined company may build lines into population centers in Massachusetts and Connecticut from northern New Hampshire and western Maine, ideal sites for wind-energy production, Shivery said.

Barclays Plc and Lazard Ltd. are advising Northeast and Skadden Arps Slate Meagher & Flom LP is legal counsel. Goldman Sachs Group Inc. and Lexicon Partners Ltd. advised NSTAR and Ropes & Gray LLP is legal counsel.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net.

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net; Susan Warren at susanwarren@bloomberg.net.

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