Energy East Corp. said it would pay $1.4 billion to buy RGS Energy Group Inc., creating one of the largest diversified energy providers in the U.S. Northeast. The companies said they would use the savings from merged operations to ease the way for a deregulated electricity market in New York state. Under terms of the deal, Energy East will pay $39.50 per share in cash or Energy East stock for Rochester, N.Y.-based RGS Energy. That is an almost 20% premium on RGS Energy's closing stock price Friday of $33.10. Energy East would also assume about $1 billion of RGS Energy debt. Together, the two companies would serve about half of the population in upstate New York, or about 3 million people. Many analysts have put 2.5 million customers as the minimum necessary to make a U.S. transmission company competitive, with the goal being more than the 5 million reached in Consolidated Edison's proposed purchase of neighboring Northeast Utilities, which is still awaiting regulatory approval. Shares of Energy East closed off 79 cents at $18.35, while RGS rose $3.30 to close at $36.40, both on the New York Stock Exchange.