With its seemingly bottomless stomach rumbling again, EnergyEast bought Berkshire Energy Resources for $96 million last week inan attempt to complement its growth strategy and gain new gascustomers in western Massachusetts. The companies said they expectto complete the transaction within 12 months. As part of the deal,Energy East also assumed $40 million of Berkshire’s preferred stockand long-term debt.

Upon completion, Berkshire will become a wholly-owned subsidiaryof Energy East. Berkshire’s principal gas distribution subsidiary,Berkshire Gas Co., serves 34,000 customers in westernMassachusetts. Berkshire Propane, Inc. serves 6,000 propanecustomers across a 5,000-square- mile territory in westernMassachusetts, southern Vermont and eastern New York. Also involvedin the acquisition is Berkshire Service Solutions, which sellsenergy to commercial and industrial customers and provides HVAC andplumbing services. Berkshire will maintain its Pittsfield, MA,headquarters.

Wes von Schack, CEO of Energy East said, “Berkshire Resourcesmakes good strategic sense. It complements our growth strategies,particularly in Vermont and New Hampshire, and its propane businessprovides an opportunity for further expansion. Also, Berkshire’sproximity to NYSEG in eastern Upstate New York and CTG Resources,Inc. in northern Connecticut makes it a good geographical fit.”

The transaction breaks down to an offer of $38/share in cash,representing more than a 15% premium over Berkshire’s closing stockprice of $33/share on Tuesday. Energy East said no layoffs wereplanned and it intends to create workforce savings through normalattrition. Dan Farley, an Energy East spokesman, said the deal mustclear FERC’s and the Security and Exchange Commission’s regulatoryprocesses, but no state approval are needed.

“If I were them, I’d be buying like crazy as well,” said EdTirello, an analyst with Deutsche Banc Alex. Brown. “[Energy East]understands the situation. Consolidation is happening all over theplace, creating a once in a lifetime opportunity. If you don’t buy,someone else will and they’ll reap the benefits. This is [EnergyEast’s] chance to roll up all of New England, and they’re takingit.”

Berkshire represents the fourth LDC Energy East is attempting topurchase. The others include CMP Energy last April, ConnecticutEnergy last June and CTG Resources last July. While the Berkshiredeal is the smallest of the transactions, Energy East has stillspent over $2 billion this year in acquisitions. All of thetransactions will be financed through some combination of cash anddebt, Farley said, but the exact allocations have not beendetermined because “none of the deals have closed.”

Energy East has gained shareholder approval for its deals withCTG Resources, Connecticut Energy and CMP Energy, but it has notreceived FERC or Nuclear Regulatory Commission approval for any ofits moves.

Following the completion of all four acquisitions, Energy Eastwill have 1.3 million electric customers and more than 560,000 gascustomers, excluding any added through CMP Natural Gas, the Mainegas distribution partnership of Energy East and CMP. With CTG andConnecticut Energy, Energy East becomes the largest gas distributorin Connecticut with about 300,000 customers.

John Norris

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