On October 27, 2025, American Water Works Company, Inc. (NYSE: AWK) and Essential Utilities, Inc. (NYSE: WTRG) announced a definitive agreement to merge in an all-stock, tax-free transaction that will create a regulated water and wastewater utility with an estimated pro-forma market capitalization of approximately $40 billion and an enterprise value of around $63 billion. The merger, which was revealed just ahead of the market close, is set to transform the two companies into one of the largest players in the U.S. water and wastewater sector, serving millions of customers across the country.
Under the terms of the deal, Essential shareholders will receive 0.305 shares of American Water for each share they hold, reflecting a 10% premium to Essential’s 60-day volume-weighted average share price prior to the announcement. After the transaction closes, American Water shareholders will own approximately 69% of the combined entity, while Essential shareholders will hold about 31%. The merged company will operate across 17 states, providing water and wastewater services to around 4.7 million connections. This merger positions the new entity as a dominant force in the U.S. regulated utility sector, with an extensive customer base and a broad geographic footprint.
The deal comes at a time when Environmental, Social, and Governance (ESG) considerations are becoming increasingly important for corporations in the utility sector. Both companies are likely hoping to address the growing demand for sustainable business practices, as the regulatory environment continues to evolve in response to increasing environmental concerns. ESG factors are expected to play a key role in shaping the combined entity’s future growth strategies, especially given the capital-intensive nature of the water and wastewater infrastructure needed to support millions of customers.
From a corporate-law and regulatory perspective, the merger highlights several key features. The all-stock nature of the deal signals the companies’ confidence in their future earnings and growth prospects, with both American Water and Essential setting expectations for earnings per share (EPS) and dividend per share (DPS) growth of 7-9% annually. The regulated utility framework also means that the merger will require approval from multiple state utility commissions, as well as oversight by antitrust regulators. This presents a unique challenge for both companies as they navigate the complexities of integrating operations across various states, each with its own regulatory environment.
Another important consideration for the companies is their commitment to employees, union partnerships, and the communities they serve. The merger announcement emphasized that the benefits and union contracts for employees would remain intact, ensuring continuity for the workforce during the integration process. The companies also reassured customers that there would be no immediate rate changes as a result of the merger, a critical message in a sector where customers are often sensitive to price hikes.
For corporate-law practitioners, this deal presents a range of M&A considerations specific to regulated sectors. Shareholder approval thresholds, regulatory agency clearances (including reviews by public utility commissions and antitrust authorities), the integration of unionized operations, and maintaining growth targets while managing regulatory risk are just a few of the challenges that will need to be addressed in the coming months. The regulatory scrutiny of this transaction will likely focus on ensuring that the merger does not harm competition or result in unfair pricing for customers, particularly in the context of the companies’ ongoing commitments to infrastructure investment and sustainability.
In conclusion, the merger between American Water and Essential Utilities represents a significant reshaping of the U.S. regulated utility landscape, driven by both strategic growth considerations and the increasing demand for sustainable, ESG-focused practices. As the deal moves forward, the companies will need to navigate complex regulatory requirements, while ensuring that the integration process preserves the value for shareholders, employees, and customers alike. With an expanding customer base and a commitment to long-term growth, the newly formed entity is well-positioned to become a leading force in the U.S. water and wastewater utility sector.
