Updated from 8:49 a.m. EDT

Shares of

AES

(AES) - Get Report

and

Ipalco Enterprises

(IPL)

rose Monday after AES, one of the world's largest global electricity providers, announced it had agreed to buy Ipalco, an Indianapolis-based utility holding company, in an all-stock deal valued at $2.15 billion.

Arlington, Va.-based AES will also assume $890 million worth of Ipalco debt.

Under the terms of the agreement, Ipalco shareholders will receive a number of AES shares assuming the fixed value of $25 per Ipalco share. Based on recent market prices, AES would issue approximately 43 million shares -- or about a half-share of AES for every Ipalco share. The final exchange ratio will be determined five business days prior to closing, based upon the average daily closing prices of AES common stock for the preceding 20 trading days and capped at approximately 0.80 AES share per Ipalco share.

At $25 per share, the deal represents a 16.3% premium for Ipalco shareholders over last week's closing price of 21 1/2. AES closed last week's trading down 2 9/16 at 50 3/8 after reaching a new 52-week high of $53.625 the day before. AES' stock price has doubled in the last nine months.

After the deal was announced Monday, shares of Iaplco rose 1 point, or nearly 5%, to close at 22 1/2. AES shares gained 3 5/8, or 7%, to close at 54.

The proposed deal must get the approval of state and federal regulators and Ipalco shareholders. The companies said they expect it to close by early 2001.

David Parker, an analyst at

Robert W. Baird & Co.

, expects Ipalco's stock to trade in a narrow range until the deal receives final regulatory approval, assuming it does. Parker downgraded Ipalco's stock to a "market perform" from a strong buy rating after the acquisition announcement since Ipalco is trading so close to the firm's revised target price of $24 (down from $25).

Baird does not underwrite the stock.

"It's a hard ceiling here," Parker said, referring to the $25-per-share acquisition price. "The good news is, the stock is up."

In a statement issued Monday morning, John Hodowal, Ipalco's chairman and chief executive, called the deal "a positive development" for his company's shareholders, employees, and customers. The addition of AES' global reach and resources, he said, would help Ipalco offer broader services to its customers at more competitive prices.

AES is one of the world's largest independent power producers, with interests in about 125 plants in the Americas, Europe, Asia and Australia. AES also sells electricity directly to about 15 million customers worldwide through interests in 17 distribution companies, most of them in Latin America.

Ipalco's primary subsidiary,

Indianapolis Power & Light

, owns and operates 3,000 megawatts of coal-fired generation and provides retail electric service to more than 430,000 customers in central Indiana.

Lehman Brothers

advised AES, while

UBS Warburg

acted as a financial adviser to Ipalco.