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Nipsco, Bay State Gas Merger Cleared at Last

Nipsco, Bay State Gas Merger Cleared at Last

After a long, drawn-out regulatory process, Nipsco Industries (NI) finally completed its merger with Massachusetts-based Bay State Gas Co., giving the Indiana-based holding company a powerful East Coast influence. The $780 million merger originally was announced in December 1997 and was expected to close before the end of 1998. Final documents were signed last Friday.

Under the terms of the agreement, Bay State and its subsidiary, Northern Utilities Inc., will become wholly-owned subsidiaries of NI. Each share of Bay State common stock will be converted into the right to receive $40 in cash, or 1.4 shares of NI common stock as determined by the average NI closing price reported in the Wall Street Journal for the 20 days ending Feb. 9. Bay State will still operate with local management, employees and directors. No layoffs are expected to result from the merger.

"I think lots of people are wondering why it took so long," said Nipsco spokesperson Kris Falzone. "There were no snags, and actually state approvals have been in since last fall. It was just a matter of getting through the SEC. Dotting the 'i's and crossing the 't's."

Nipsco CEO Gary Neale said the delay will cause a small problem because Nipsco did not have access to Bay State's Northeast markets during a critical time. "[Earnings] will be slightly less because we missed the premier earnings month, which is January in this business. We are not ready to re-forecast yet until we get our hands on the books." Neale said previous projections had the merger adding $0.04-$0.05 per share.

Ed Tirello, an analyst with BT Alex Brown, gave Nipsco high marks for the move. "It gives them a very good foothold to access the East, which seems to be the popular thing these days. This helps Nipsco not only in terms of gas, but Bay State also has very good energy service assets that Nipsco can now utilize. I think Nipsco has done a very good job of implementing the strategy of drawing a line from the Southwest to the Northeast, then buying along that line." Tirello added that the deal should be accretive in its first full year of operation.

Falzone said the big winner of this deal will be the Bay State customers, who will receive a five-year rate freeze of their basic gas rate. The customers will also benefit from receiving their gas from a larger company that can offer a variety of services along with reliable gas.

"Our merger with Nipsco Industries will provide Bay State the size and scope we need to succeed in the changing energy markets of the future," said Roger Young, chairman of Bay State Gas, which serves 305,000 natural gas customers in Massachusetts, New Hampshire, and Maine.

John Norris

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