Investors remain unimpressed by recent major water and sewer merger despite its significance.

As shareholders of American Water located in Camden and Bryn Mawr-based Essential Utilities gear up for a pivotal vote on February 10 regarding their merger, both New Jersey and Pennsylvania regulators are currently evaluating American Water’s recent requests for rate hikes. This merger, which aims to establish a combined entity valued at approximately billion, presents significant implications for the water and sewer services across both states.

American Water’s New Jersey division recently filed for an average rate increase of 10% for water and 8% for sewer services, a move that would impact approximately 2.9 million customers. Should the New Jersey Board of Public Utilities approve the request, customers would face an average monthly increase of around . The company has stated that the proposed rate hike would fund necessary improvements to its aging infrastructure, thereby ensuring safe and reliable water services for its users.

In Pennsylvania, the Public Utility Commission has announced plans to thoroughly review a separate request from American Water to increase water and sewer rates for 2.4 million customers by an average of 15%, translating to an additional per month for each customer.

Investor sentiment regarding the merger has been lukewarm, as American Water’s stock, which traded above 0 for most of the previous year, closed at 0.74 on Friday. This decline in stock price reflects a broader skepticism about the merger’s potential benefits, particularly among Essential’s shareholders, who have not experienced the expected premium typically associated with acquisition deals.

Industry analysts suggest that while the merger may strategically benefit American Water, it may not yield favorable outcomes for Essential’s shareholders. The latter group has not pursued competitive offers from other potential suitors, such as Veolia and NextEra, raising questions about the negotiation process.

As the vote approaches, American Water’s planning for the merger remains on track, with executives and external consultants being involved in the integration strategy. This has occurred amid a backdrop of increased grassroots resistance to privatizing water services, which both companies have encountered over their lengthy histories.

Recent rate increase hearings have also drawn attention to customer concerns about rising costs. Feedback from various stakeholders indicates a growing frustration with consecutive rate hikes and a desire for more transparent processes regarding infrastructure investments. Stakeholders including local officials have voiced significant opposition during these hearings, highlighting the need for American Water to effectively communicate the rationale behind its continued price increases.

As the discussions surrounding the merger evolve, the real valuation of Essential Utilities remains a critical topic. Analysts have spotlighted discrepancies between market prices and estimated valuations, suggesting that Essential’s actual worth may be significantly higher than its current stock price. With investment advisory firms calculating its value between and per share, this situation has raised pressing questions about the merger’s financial implications and its potential impact on the broader market landscape.

The trajectory of this merger, along with the accompanying regulatory scrutiny and shareholder dynamics, will undoubtedly play a crucial role in shaping the future of water utility services in the region.