Updated from 11:13 a.m. EDT

In a merger that will create the U.S.' largest electric company,

FPL Group

(FPL) - Get Report

will combine with

Entergy

(ETR) - Get Report

, the companies said Monday.

Based on Friday's closing prices, the deal is valued at around $27 billion, including $10.7 billion in debt and preferred stock.

The deal was described by the two companies as a merger of equals, and the terms offer virtually no premium to either company's shareholders, based on Friday's closing prices.

Investors reacted by selling off shares in both companies. FPL Group shares closed down 4 9/16, or 9%, at 48 1/4. Entergy shares finished Monday 3 3/16, or 11%, at 27 1/8.

Under the terms of the new agreement, the two will form a new holding company, with FPL shareholders owning 57% and shareholders of New Orleans-based Entergy with a 43% stake. Each FPL share will be exchanged for one share in the new company, while each share of Entergy will be worth 0.585 share in the new company.

Despite unanimous support from the boards of directors of both companies, the merger still faces the approval of federal and state regulators and of shareholders from both companies.

Dan Ford, an energy analyst with

ABN-Amro

, said the deal faces tough scrutiny from regulatory agencies in the Southeast in particular as the combined company will dominate the industry in that region.

Entergy's domestic utility operations provide electric service in parts of Arkansas, Louisiana, Mississippi and Texas, and natural gas utility service in portions of Louisiana. FPL, the Juno, Fla.-based parent of

Florida Power & Light

, supplies electric service to about 3.8 million customers along most of the east and lower west coasts of Florida.

Despite the regulatory difficulties, Ford said the merger is likely to gain regulatory approval -- particularly as it represents the continuation of a trend toward consolidation in the industry, including the pending merger of

PECO Energy

and

Unicom

(which will have an estimated 5 million customers, upon completion). Ford predicts the FPL Group-Entergy merger will likely take at least 15 months to complete.

The merger will immediately be accretive to earnings. In a statement, FPL Group Chairman and Chief Executive Officer James L. Broadhead said he expected the combined company's average annual earnings per share growth to be 10% or more.

Ford said accretive earnings growth could climb as high as 15% the first year, and said the combined company should be able to maintain a minimum 10% annual growth at least through the next five years. ABN-Amro maintains buy ratings on both companies' stock, with a revised longterm target price of $65 for FPL shares and $37 for shares of Entergy. The firm does no underwriting for either company.

The combined company, which has not yet been named, will have a market capitalization of close to $16.4 billion and more than 6.3 million electric customers. The new company will boast over 48,000 megawatts of electric generating capacity and 10,000 megawatts of nuclear generating capacity, making it the country's leader in electric service and power production, and the second-largest nuclear power generator.