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NYSEG Continues Consolidation, Buys Connecticut LDC

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 following closing.

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 options.

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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