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ENERGY EAST PURCHASES RGS ENERGY FOR $2.4 BILLION

Energy East Corp. agreed today to buy RGS Energy Group for $2.4 billion in cash, stock and assumed debt in a deal that will combine New York State Electric & Gas Corp. and Rochester Gas & Electric Corp. to create a utility serving half of Upstate New York.

The merger will create one of the Northeast's largest energy companies, serving nearly 2.8 million customers in New York and New England with annual sales of more than $5 billion.

Energy East agreed to pay $39.50 for each share of RGS Energy stock, a 19 percent premium from the company's closing share price of $33.10 Friday.

The merger, which comes on the heels of National Grid Group's $8.9 billion agreement last September to buy Niagara Mohawk Holdings, is part of the wave of consolidation that is sweeping through the newly deregulated energy industry.

Energy East has acquired four utilities in New England during the last two years in a push to become a major regional energy delivery and services provider in the Northeast.

The combined company will have about 5,000 employees in upstate New York, although officials said the merger is not expected to lead to any job cuts. The deal is expected to produce about cost savings of about $50 million a year, mainly by combining purchasing, administrative and information-systems functions.

Wes von Schack, Energy East's president and chief executive officer, said the two companies are an excellent fit because their service territories share a common boundary for more than 200 miles, which should provide the opportunity to make operations more efficient.

The deal also will combine NYSEG's largely rural service territory with RG&E's more urban area of operations, which centers around Rochester.

The merger is expected to add to Energy East's profits within the first year and the combined company will adopt Energy East's dividend policy, which has increased payments to shareholders by 5 percent during each of the last five years.

Based on Energy East's closing stock price of $19.14 per share Friday, RGS Energy shareholders who choose to receive stock would get 2.0637 shares of Energy East stock. Those shares would pay a dividend of $1.90 per share.

The ultimate terms of the deal will depend on Energy East's average closing price during the 20 trading days leading up to the merger's closing. RGS Energy shareholders will receive between 1.7626 and 2.3838 shares of Energy East stock, depending on Energy East's average share price.

The deal, which must be approved by a long list of federal and state regulators, is expected to close within a year.

RGS Energy will become a subsidiary of Energy East, with both RG&E and NYSEG becoming subsidiaries of RGS Energy. RGS Energy, RG&E and NYSEG will have their headquarters in Rochester, although NYSEG's operating headquarters will remain in Binghamton.

Von Schack will continue to be the chairman, president and chief executive officer of Energy East, while RGS Energy's top executive, Thomas Richards, will retain his title as chairman, president and CEO of RGS Energy and also become chairman and chief executive officer of RG&E and NYSEG. Richards also will become an executive vice president of Energy East.

Ralph Tedesco will remain president and chief operating officer of NYSEG.

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