National Grid PLC agrees to buy KeySpan for $7.3 billion
Monday, February 13th 2006, 10:26 am
By: News On 6
LONDON (AP) _ British utility National Grid PLC said it agreed to buy New York-based electricity and natural-gas distributor KeySpan Corp. for $7.3 billion in a deal that would create the third-largest energy delivery utility in the United States.
National Grid said Monday it was paying the $7.3 billion in cash and also taking on debt estimated at $4.5 billion. KeySpan shareholders will receive $42.00 in cash per share.
Upon completion of the deal, National Grid will serve nearly 8 million customers in New York state and New England, the companies said.
National Grid, which owns and operates Britain's power grid, already has a large presence in the United States. It distributes electricity and natural gas to nearly 4 million customers in Massachusetts, New Hampshire, New York and Rhode Island.
KeySpan, based in the Brooklyn borough of New York, is the fifth-largest gas-distribution company in the United States and the largest in the Northeast. It operates the power transmission system for the Long Island Power Authority, bringing electricity to more than 1 million customers in New York's Nassau and Suffolk counties and the Rockaway Peninsula in Queens.
KeySpan's shares fell 50 cents, or 1.2 percent, to $40.91 in early trading Monday, still near the high end of the stock's 52-week range of $32.66 to $41.52 on the New York Stock Exchange.
National Grid's shares rose 1.4 percent to 622 pence (US$10.19; euro8.56) in trading on the London Stock Exchange.
The acquisition is to be completed by early next year.
National Grid said it expects to deliver $200 million per year in savings. The British company said it would honor all labor agreements in place between unions and KeySpan and an undisclosed number of job cuts would be achieved through voluntary programs and attrition.
Michael E. Jesanis will continue as president and CEO of National Grid USA. Bob Catell, currently chairman and CEO of KeySpan, will join the National Grid board as deputy chairman and will also become chairman of National Grid USA, National Grid said.
``KeySpan is an excellent operational and geographic fit and a natural extension of our business and our strategy,'' said Roger Urwin, National Grid Group chief executive.
``This transaction will deliver significant value to shareholders and customers of both companies,'' said Catell.
``KeySpan will become an important part of one of the largest and most efficient energy delivery companies in the world, and have access to additional financial resources to invest in our energy infrastructure and growth opportunities,'' Catell said.
Moody's Investor Services placed National Grid's debt rating on review for downgrade, expressing concern about the debt the group will acquire if it goes through with the all-cash bid.
``While the predominantly regulated businesses of KeySpan ... are characterized by relatively predictable and thus low-risk cash flow generation, the company generates around 30 percent of earnings from power generation activities, which Moody's views as higher risk,'' Moody's said.
Fitch Ratings, however, affirmed National Grid's ratings.
``This acquisition is in line with the National Grid's long-stated strategy to buy further utilities in northeastern U.S.,'' said Steve Durose, senior director for Fitch's corporate group in London.