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Energy East Keeps Eating Despite Full Stomach

November 15, 1999
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Energy East Keeps Eating Despite Full Stomach

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

Upon completion, Berkshire will become a wholly-owned subsidiary of Energy East. Berkshire's principal gas distribution subsidiary, Berkshire Gas Co., serves 34,000 customers in western Massachusetts. Berkshire Propane, Inc. serves 6,000 propane customers across a 5,000-square- mile territory in western Massachusetts, southern Vermont and eastern New York. Also involved in the acquisition is Berkshire Service Solutions, which sells energy to commercial and industrial customers and provides HVAC and plumbing services. Berkshire will maintain its Pittsfield, MA, headquarters.

Wes von Schack, CEO of Energy East said, "Berkshire Resources makes good strategic sense. It complements our growth strategies, particularly in Vermont and New Hampshire, and its propane business provides an opportunity for further expansion. Also, Berkshire's proximity 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 stock price of $33/share on Tuesday. Energy East said no layoffs were planned and it intends to create workforce savings through normal attrition. Dan Farley, an Energy East spokesman, said the deal must clear FERC's and the Security and Exchange Commission's regulatory processes, but no state approval are needed.

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

Berkshire represents the fourth LDC Energy East is attempting to purchase. The others include CMP Energy last April, Connecticut Energy last June and CTG Resources last July. While the Berkshire deal is the smallest of the transactions, Energy East has still spent over $2 billion this year in acquisitions. All of the transactions will be financed through some combination of cash and debt, Farley said, but the exact allocations have not been determined because "none of the deals have closed."

Energy East has gained shareholder approval for its deals with CTG Resources, Connecticut Energy and CMP Energy, but it has not received FERC or Nuclear Regulatory Commission approval for any of its moves.

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

John Norris

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