Massachusetts Approval Seals Northeast Utilities-NStar Merger
04/05/2012| 06:42pm US/Eastern
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--Northeast Utilities, NStar get final regulatory approval for $4.7 billion merger
--Northeast Utilities to buy NStar in all-stock deal companies aim to close by Tuesday
--The combination of the northeastern companies is the latest in a string of utility mergers
(Adds analysts' comments in the ninth paragraph.)
By Cassandra Sweet
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Massachusetts regulators Thursday approved the proposed $4.7 billion merger of Northeast Utilities (>> Northeast Utilities System) and NStar (NST), allowing the companies to close the deal.
Northeast Utilities, of Hartford, Conn., plans to buy Boston-based NStar in an all-stock deal that the companies said they plan to close Tuesday.
The Massachusetts Department of Public Utilities approved settlement agreements with the companies that include a rate freeze through 2016 and a one-time credit of $21 million for customers of NStar utilities. The companies also have to provide additional financial information requested by the department by April 15, 2015.
"Today marks a historic day for our companies and our customers," NStar Chairman and Chief Executive Thomas May said in a statement.
The combination of the two northeastern utility holding companies is the latest in a string of utility mergers, as companies that deliver electricity and natural gas look for ways to cut costs, pool their resources and gain market share.
U.S. power giant Exelon Corp. (EXC) closed its $7.9 billion acquisition of Constellation Energy Group last month. Two other large utilities, Duke Energy Corp. (DUK) and Progress Energy Inc. (PGN), are seeking federal approval to complete their proposed $13.7 billion merger.
Shares of Northeast Utilities closed 0.4% lower at $36.89, while NStar shares closed 0.6% lower at $48.30, amid a broader drop among utility stocks.
Some analysts said the merger would be positive, as long as Northeast Utilities can increase demand and sign up new customers.
The cost savings and "synergies," along with being able to avoid rate cases until the rate freezes end are pluses, said analysts at Macquarie Group Ltd. (MQBKY, MQG.AU). However, risks remain, such as "potential delays, downsizing or cancellations of large-scale transmission projects" on which Northeast would earn a return, the analysts said.
Standard & Poor's Ratings Services raised its rating on Northeast Utilities and its subsidiaries while cutting its rating on NStar and its subsidiaries, in anticipation of the merger.
The Connecticut Public Utilities Regulatory Authority approved the companies' merger earlier this week. The companies pledged to give customers of Northeast Utilities's Connecticut Light & Power utility a one-time, $25 million credit on their utility bills and a rate freeze until Dec. 1, 2014. Northeast also agreed to spend $300 million to beef up the Connecticut utility's electricity distribution system and keep its headquarters in Hartford for at least seven years, among other commitments.
The companies also obtained merger approval from the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, the Securities and Exchange Commission and the Federal Communications Commission.
Northeast provides power to more than 2 million customers in Connecticut, New Hampshire and Massachusetts, while NStar delivers electricity and gas to about 1.4 million customers.
S&P raised its rating on Northeast Utilities to A-minus from triple-B-plus. Subsidiaries Connecticut Light & Power, Public Service Co. of New Hampshire, Western Massachusetts Electric Co. and Yankee Gas Services Co. were also upgraded one notch to A-minus, six levels below a top-grade triple-A rating.
NStar and subsidiaries NStar Electric Co. and NStar Gas Co. were downgraded two notches, to A-minus from A-plus.
-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com
--Ben Fox Rubin contributed to this article.
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