NYSEG Continues Consolidation, Buys Connecticut LDC
Energy East Corp., parent of New York State Electric & Gas,
offered to buy Connecticut Energy Corp. (CNE) for $617 million
Friday, paving the way for the combined utility to add 160,000 new
gas customers and at the same time continuing to shrink the number
of pure gas utilities. The board of directors for each company has
agreed to the deal.
"Our focus is on maximizing shareholder value and we are doing
that by moving away from generation and turning our attention to
distribution of electricity and gas. Our two companies have a
similar goal of bringing energy deregulation to New England and
this merger would enhance competition in the area. It also gives
Energy East the opportunity to operate in an area of high growth
potential and new market penetration" according to Wes von Schack,
Energy East CEO.
The offer still needs approval from each company's shareholders
as well as the Securities and Exchange Commission and the
Connecticut Department of Public Utility.
If approved, CNE shareholders would receive $42 share. An
industry analyst said the price is 2.4 times the book value while
the industry average price for offers is 2.3 times book value. Half
the shareholders would be paid in stock and the other half would
receive cash. For those that would receive stock, there is a floor
value of $23.10 and a collar of $29.40. The transaction is expected
to be tax-free to CNE shareholders to the extent they receive stock
of Energy East. The deal will be accretive in the first full year
If the merger is approved, one director of the CNE board will be
elected to the Energy East board. J.R. Crespo, CEO of CNE and its
major subsidiary, Southern Connecticut Gas, will remain in his
position as well as gain new responsibility as head of Energy
East's Xenergy Enterprises. While Energy East is based in Ithaca,
NY, CNE's headquarters will remain in Bridgeport, CT.
Southern Connecticut's gas optimization deal with Sempra (See
Daily GPI, Jan. 29) will be unaffected, Crespo said in a conference
call Friday. The deal, which became effective April 1 and allows
Sempra to manage supply and delivery of gas to Southern
Connecticut's customers, runs for one year. After the contract
expires, Crespo said Southern Connecticut will re-evaluate its
Although both companies expect to close the transaction in one
year, Dave Fidell, an analyst with AG Edwards, said it may take
longer. "Whenever I hear the closing of a merger is expected in 12
months, I automatically assume 15. Especially because the SEC is so
backed up with all the other mergers, this one could take some
time." He added that the offer is fair and there isn't much
likelihood for a hostile or competing bid.
Fidell said this merger is another case of a gas utility being
swallowed up by a larger, more diverse energy company. "We've got
just another piece of the convergence puzzle in place. Its been
happening for a while now. These gas utilities get eaten up by
these bigger, combined utilities all over the place."
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