Northeast Utilities, NSTAR agree to $17.5B merger to form New England's largest utility company

Source: Northeast Utilities

Northeast Utilities (NYSE:NU) and NSTAR (NYSE:NST) announced that both companies’ Boards of Trustees have unanimously approved a definitive merger agreement that will create one of the nation’s largest utilities, with a total enterprise value of $17.5 billion. The Company will continue to be called Northeast Utilities.

“The combination of Northeast Utilities and NSTAR will create a great New England based company, assuring the regional benefits of a locally controlled energy company for years to come,” said Charles W. Shivery, Chairman, President and CEO of Northeast Utilities. “Our companies already have a strong track record of working together for New England. We recently jointly executed an agreement to invest $1.1 billion in new transmission lines to Québec, which will provide low-carbon hydro energy to power one million homes in New England beginning in 2015.”

“NSTAR’s strong cash flows are very complementary to Northeast Utilities’ attractive regulated investment opportunities, mitigating the need for future equity issuances which is a significant benefit for our shareholders,” continued Mr. Shivery. “This merger, upon completion, will provide a significant increase in the dividend for Northeast Utilities shareholders and will enable long term dividend growth opportunities that are so important to all of our investors.”

Thomas J. May, Chairman, President and CEO of NSTAR said, “This is simply the start. Together, with enhanced financial resources, complementary distribution and transmission assets, reputations for operating excellence and talented employees, we will be able to accomplish great things. NSTAR’s very strong balance sheet coupled with Northeast Utilities’ impressive array of transmission investment opportunities and diversified suite of distribution businesses translates into a compelling growth story. Merging with Northeast Utilities provides more diverse, stable and higher earnings and dividend growth than NSTAR would have achieved on its own. It also assures that the long track record of success our investors have enjoyed in the past will continue.”

Mr. May added, “With this transaction we will create a larger, stronger and more diversified regulated utility with over 9,000 employees in Massachusetts, New Hampshire and Connecticut, thereby benefiting our region as a whole. The combined company will have the scale, employee talent and financial resources to meet the complex and demanding energy needs of customers across New England and provide sustainable energy solutions that will support regional growth.”

The companies will come together in a stock for stock merger of equals. The combined company will provide electric and gas energy to over half of the customers in New England.

The combined company will operate six regulated electric and gas utilities in three states and will have nearly 3.5 million electric and gas customers. 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.

The transaction is expected to be accretive to Northeast Utilities’ earnings in the first year following close.

CUSTOMER BENEFITS

The transaction will create many opportunities for the companies to leverage their combined resources to strengthen service quality in the various service territories. The two companies have plans to invest $9 billion in New England’s energy infrastructure over the next five years. The combined scope and scale of Northeast Utilities will make investment more cost effective, spread over a larger customer base, allowing investments on a scale that might not be attractive to the companies on a stand-alone basis. In addition, the combined company will share best practices and implement them over the entire customer base. For example, Northeast Utilities and NSTAR have been long recognized by many national and international organizations for the success of their energy-efficiency programs that, when combined, total more than $200 million in annual spending.

Customers will not experience any merger-related rate changes. The merger is expected to produce important long term net savings as a result of efficiencies. These efficiencies are expected to be realized over time primarily through process improvements, voluntary attrition and retirements. Current terms of the collective bargaining agreements will remain in place.
Both companies have longstanding reputations as excellent corporate citizens and Northeast Utilities will maintain the current level of funding for vital civic and philanthropic organizations across its combined service areas.

TERMS

Under the terms of the agreement, NSTAR shareholders would receive 1.312 Northeast Utilities common shares for each NSTAR share that they own in a transaction with a total equity value of $9.5 billion and an enterprise value of $17.5 billion. The exchange ratio reflects a no premium merger based on the average closing share price of each company for the preceding 20 trading days. Following completion of the merger, it is anticipated that Northeast Utilities shareholders would own approximately 56 percent and NSTAR shareholders would own approximately 44 percent of the combined company. The agreement provides that, upon closing of the transaction, Northeast Utilities’ dividend per share would be increased to a rate that is equivalent to NSTAR’s dividend per share, at that time, on an exchange ratio adjusted basis.

ORGANIZATION AND LEADERSHIP

Northeast Utilities will have dual headquarters in Hartford, CT and Boston, MA.
Upon the closing of the transaction, Charles W. Shivery will become the Non-Executive Chairman of Northeast Utilities for a period of 18 months. Thomas J. May will serve as President and CEO of Northeast Utilities and assume the additional role of Chairman after 18 months.
The Board of Trustees of Northeast Utilities will be made up of a combination of Trustees from the two companies, including 7 members nominated by the Board of Northeast Utilities and 7 members nominated by the Board of NSTAR, with the Lead Trustee nominated by the Board of Northeast Utilities.

APPROVALS AND TIMING

The merger is conditioned upon, among other things, approval by two-thirds of the outstanding shares of both companies, the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and reviews by federal and state energy authorities. These 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 anticipate that the regulatory approvals can be obtained within 9 – 12 months. The companies intend to seek shareholder approval of the transaction in early 2011.

ADVISORS

Barclays Capital is serving as lead financial advisor and Lazard is serving as financial advisor to Northeast Utilities. Skadden, Arps, Slate, Meagher & Flom LLP is serving as transaction counsel to Northeast Utilities. Goldman, Sachs and Co., is serving as lead financial advisor and Lexicon Partners (US) LLC is serving as financial advisor to NSTAR. Ropes & Gray LLP is serving as transaction counsel to NSTAR.



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