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Northeast Utilities to buy NSTAR for $4.17 billion

NEW YORK (Reuters) - Northeast Utilities NU.N will buy peer NSTAR NST.N in a $4.17 billion all-stock deal to create a utility that will provide power and gas to more than half of the customers in New England, the companies said on Monday.

The companies said the increase in scale would allow them to better shoulder their investment plans, and would also be beneficial to the company’s shareholders.

“Bigger is better” for the two companies, NSTAR Chief Executive Thomas May said in an interview. “The deal allows both of our shareholders to enjoy higher earnings and dividend growth than if we were alone.”

The deal calls for the exchange of 1.312 common shares of Northeast Utilities for each NSTAR share. That translates to around $40.28 for each NSTAR share, a roughly 2 percent premium, as of Friday’s close.

Northeast expects the deal to add to earnings in the first full year after completion, and said its dividend per share would also rise about 20 percent when the deal closes.

Upon completion, Northeast Utilities would operate six regulated electric and gas utilities in Massachusetts, Connecticut and New Hampshire with nearly 3.5 million electric and gas customers.

Both companies focus primarily on transmission and distribution of power and gas, but Northeast also owns more than 1,000 megawatts of power generation.

The companies said they expected the merger to produce “important long term net savings as a result of efficiencies,” and the combined entity would spend $9 billion on the region’s energy infrastructure over the next five years. The two companies were already working together to invest $1.1 billion for new transmission lines to Quebec, which would bring hydro-fueled energy to New England beginning in 2015.

Because of the deal, NSTAR can cancel plans to issue more equity in 2012, which it would have used to pay for investments on transmission projects, the company said.

Utility deals have traditionally been more difficult than other deals to complete because they generally require approval from state regulators as well as various federal regulators.

Still, the companies said they expect to be able to navigate the regulatory process within nine to 12 months. They operate in three states, but expect to need approval only from Massachusetts, as well as from federal regulators.

The companies expect to seek the necessary two-thirds approval from shareholders in early 2011.

Barclays Capital and Lazard advised Northeast on the deal, while Goldman Sachs and Lexicon Partners advised NSTAR.

Editing by Lisa Von Ahn, Matthew Lewis, Dave Zimmerman

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