(Reuters) - Duke Energy said on Monday it agreed to buy Progress Energy Inc for $13.7 billion in stock, creating the largest U.S. power company if it wins approval from regulators in North and South Carolina.

The transaction would create an industry giant with approximately 7.1 million electricity customers in North Carolina, South Carolina, Florida, Indiana, Kentucky and Ohio, and 57,000 megawatts of generating capacity.

Duke's offer was a modest 6.4 percent premium over the last 20 trading days, the company said, and the deal would be accretive to Duke'searnings in the first year after completion.

Duke is currently the third-largest U.S. utility and would become both the largest in market value and generating capacity if the purchase is completed.

That could create a hurdle for regulators, who have blocked or created roadblocks in other acquisitions in recent years. But analysts said the deal stood a good chance of winning approval.

"As long as there is assurance and protections in place that will both prove the financial strength of the company and benefit the consumers, then regulators will approve it," said Nathan Judge, an analyst with Atlantic Equities in London.

Duke CEO and Chairman Jim Rogers told Reuters the new company would see savings in the Carolinas of $600 million to $800 million over five years due to the benefits of combining their fuel costs and delivery systems.

That savings would be passed on to customers there, but the companies said it was too early to estimate what the overall cost savings of the link-up would be.

Still, the deal would likely allow the combined company to increase its dividend.

"It really enhances our ability to grow the dividend going forward," Rogers said. "Our plans are to grow the dividend at slightly less than the growth in our earnings."

The companies would target earnings-per-share growth of 4 percent to 6 percent annually.

Rogers, who joined Duke when the company bought Cinergy for $9 billion in 2006, said the industry could be set for a new wave of consolidation as companies seek growth in their balance sheets to finance ever-increasing costs expected in the coming years.

Power deals in the past year include FirstEnergy's $4.7 billion deal for Allegheny Energy; E.ON's $6.7 billion sale of its U.S. unit to PPL Corp; and Carl Icahn's recent bid to buy power producer Dynegy.

State regulators have sought drastic concessions from companies planning to merge, such as rate reductions.

In a previous spate of mergers the middle of the last decade, planned mergers of FPL Group and Constellation Energy Group, as well as Exelon and Public Service Enterprise Group fell apart after regulatory problems arose.

Even mergers that do succeed can drag on for long periods before closing. FirstEnergy has yet to complete its transaction for Allegheny, which was agreed upon 11 months ago.

Duke last year lost out on a bid for the U.S. assets of German utility E.ON.

Duke said Progress Energy shareholders would receive 2.6125 shares of common stock of Duke Energy for each share held, or $46.48 per share, representing a 4 percent premium to the stock's Friday close on the New York Stock Exchange.

Duke Energy said it will assume about $12.2 billion in Progress Energy's debt. The company also expects to effect a reverse stock split immediately prior to closing.

Rogers was expected to become chairman of the new company, while Bill Johnson, the chairman and CEO of Progress, would become CEO of the merged companies.

J.P. Morgan was Duke's lead financial adviser, with Bank of America Merrill Lynch providing a fairness opinion. Lazard served as lead financial adviser to Progress Energy, which was also advised by Barclays Capital.

Duke Energy shares were down 1.4 percent at 17.54 on the New York Stock Exchange, while Progress Energy shares fell 1.5 percent to $44.07.

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