Northeast Utilities and NSTAR Merge

Northeast Utilities (NU), New England’s largest utility system operator, and NSTAR (NST), electric and natural gas distribution company, have agreed to merge in a stock-for-stock deal.  The merger will create one of the largest U.S. utility companies, with an enterprise value of $17.5 billion.

Following the merger, the combined company will retain the name Northeast Utilities. The $17.5 billion company will serve roughly 3.5 million customers, providing electric and gas energy to over half of the customers in New England. Northeast Utilities will operate six regulated electric and gas utilities in Connecticut, Massachusetts and New Hampshire.

Northeast Utilities will have nearly 4,500 miles of electric transmission lines, 72,000 miles of electric distribution lines and 6,000 miles of gas distribution lines.

Under the terms, the companies will merge in a no-premium deal, based on the average closing prices of the two companies based on the past 20 trading days. Northeast Utilities will issue 1.312 shares for each NSTAR share, with a total equity value of $9.5 billion.

On completion, Northeast Utilities shareholders will hold roughly 56% and NSTAR holders will own about 44% of the combined company. The directors of both companies have approved the deal.

The deal is subject to approval of holders of two-thirds of the shares of both companies as well as clearance by federal and state energy authorities and federal antitrust officials.

The regulators required to approve the deal include - the Massachusetts Department of Public Utilities, the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC), the Securities and Exchange Commission (SEC) and the Federal Communications Commission (FCC).

The companies expect to receive regulatory approvals within 9 – 12 months and shareholder approval in early 2011. The companies expect the merger transaction to be accretive to Northeast Utilities’ earnings in the first year after completion.

Following the merger, Northeast Utilities will have headquarters in Hartford, Connecticut and Boston, Massachusetts. The Board of Trustees of Northeast Utilities will have Trustees from both the companies - 7 members each nominated by the Boards of Northeast Utilities and NSTAR, with the Lead Trustee nominated by the Board of Northeast Utilities.

We believe the new, larger New England-based company will gain from the operation of a locally controlled energy company for years to come. The companies have a solid track record of working together for New England. The two companies plan to invest about $9 billion in New England’s energy infrastructure over the next five years.

Northeast Utilities will also reap the benefits of more diverse, stable and higher earnings going forward. Additionally, the merger will provide long term dividend growth opportunities for shareholders.

Read the full analyst report on NST

Read the full analyst report on NU