In a rumor that first broke late last week, Consolidated Edison(ConEd), a combination utility serving over three million electricand one million gas customers in New York, is reported to be inmerger talks with West Springfield, MA-based Northeast Utilities(NU), the largest electric utility in New England. Neither companywould comment on the subject. The reported stock and cash dealwould value NU at $2.8 billion.

Although no agreement has been reached, Wall Street has reactedsharply to the news, as NU traded at the $21 level yesterday, justunderneath its 52-week high of $21.25. ConEd shares lost ground,finishing yesterday with a new 52-week low of $36.44.

Merger activity is no stranger to either of these companies. Lastyear, ConEd purchased Orange & Rockland Utilities (O&R) for$790 million (see Daily GPI, May 12,1998). The move increased ConEd’s customer base by more than160,000. NU also has been active, acquiring Yankee Energy for $679million last June (see Daily GPI, June16), adding the largest gas distribution system in Connecticut toNU’s portfolio. Yankee shareholders approved that deal yesterday.

One electric analyst who follows both companies but wished tonot be identified said the merger fits in well with ConEd’scorporate strategy of bolstering its non-regulated services. SelectEnergy, an NU subsidiary, provides eight northeastern states withcompetitive energy products and services, including retail andwholesale energy supply, energy efficiency and engineering design,and plant management and operations.

“Both companies are no strangers to merger activities, and Ithink that is one reason why this deal is being worked on. Afterthe O&R merger, ConEd realized the amount of energy and hours amerger requires,” the analyst said. “With that in mind, ConEddecided that if they were going to merge, they were going to makeit count instead of growing through a whole bunch of smaller,time-consuming acquisitions.”

Ed Tirello, an analyst with Deutsche Banc Alex. Brown, said hebelieves the rumors are true. “I thought there would be anannouncement on [the news wires] today. I’m hopeful because I thinkit would be a good move. ConEd had nowhere else to go. A few yearsago they had failed merger attempts with other companies near theirservice territory, and with the acquisition of O&R, there isnothing else to do but turn North. Now that NU is selling theirnukes, the timing is just right.”

Both analysts said they think an announcement will be madewithin the next few days.

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