U.K. power company to buy Niagara Mohawk

THE BALTIMORE SUN

LONDON - National Grid Group PLC, owner of the power-transmission network in England and Wales, agreed yesterday to buy Niagara Mohawk Holdings Inc. for $8.9 billion in cash, stock and assumed debt, continuing an expansion into the more-lucrative U.S. market.

National Grid will pay $19 a share for the New York utility owner, 47 percent more than Thursday's closing price. It will pay about $1 billion in cash and $2 billion in stock, and assume $5.9 billion in debt.

United Kingdom power producers, their profits limited by government-imposed price cuts at home, have spent about $25 billion on U.S. purchases in the past two years. National Grid will merge Niagara Mohawk with two Massachusetts utilities it bought this year, New England Electric System and Eastern Utilities Associates.

"They'll be one of the two largest distributors of electricity in the Northeast," said Daniele Seitz, an analyst at UBS Warburg, which owned 38,933 shares of Niagara Mohawk in March.

U.S. utilities have a pretax return on sales of 10.5 percent compared with about 7 percent in the United Kingdom, said David Jones, National Grid's chief executive.

National Grid, based in London, expects to cut 500 to 750 jobs at Niagara Mohawk through buyouts and attrition, said Michael Jesanis, chief financial officer of National Grid USA. Combining Niagara's operations with its other U.S. holdings will save $90 million a year, National Grid said.

National Grid bought New England Electric of Westborough, Mass., in March for $4.7 billion in cash and assumed debt, and Eastern Utilities Associates of Boston for $1.03 billion in cash and assumed debt in April.

Shares of National Grid dropped 10 pence to 550p in London trading on concern that the issuance of new stock will dilute earnings per share. Shares of Niagara Mohawk, based in Syracuse, N.Y., rose $1.875 to $15.75.

The total purchase price values Niagara at three times its book value, in line with the average paid for other U.S. electric utilities, Bloomberg Analytics show. Niagara's shareholders will receive cash and shares in New National Grid, a holding company formed to acquire Niagara Mohawk.

The purchase will boost National Grid's electric and gas customers in the northeastern United States to about 3.2 million. The U.K. company's U.S. utilities supply energy in Massachusetts, Rhode Island and New Hampshire. Niagara made earnings before interest, tax and depreciation of $1.3 billion in 1999 on sales of $4.1 billion.

It took National Grid 15 months from the announcement of the transaction in December 1998 to complete the purchase of New England Electric. A lengthy regulatory review is likely for the Niagara Mohawk deal as well, and National Grid said it expects to complete the purchase by late 2001.

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