British-U.S. Power Merger
Britain's National Grid said Monday it's breaking into the U.S. market with an agreement in-hand to buy New England Electric System in a deal worth $4.2 billion.
National Grid is paying $3.2 billion for the company's equity - a 25 percent premium to NEE's (NES) closing price on Friday - and another $1 billion to assume the company's debt.
The U.K. electric utility said the purchase will enhance its earnings before factoring in goodwill, and will also bolster its cash flow per share.New England Electric System is based in Westborough, Mass., and has 1.3 million customers through its retail electric companies. Its principal operating companies are Massachusetts Electric Company, The Narragansett Electric Company, Granite State Electric Company and New England Power Company.
The purchase still needs regulatory approval in the U.S. - something U.K. analysts suggest could take up to two years. National Grid said it expects to wrap the deal up by early 2000.
U.K. companies, which have seen their margins squeezed in the highly competitive British electricity market, have pinned some of their expansion hopes on the U.S., where the fragmented market is considered ripe for acquisitions and consolidation.
It was only last week that Scottish Power became the first non-U.S. company to break into the market there - valued by some at $230 billion - when it agreed to buy Pacificorp for $230 billion.
National Grid, which owns and runs more than 4,000 miles of high voltage transmission lines in England and Wales said the U.S. is developing new regulatory frameworks in individual states, which is leading to the separation of generation from transmission and distribution assets, and heading toward performance-based regulation.
"You can't expect these firms to be at the forefront of their industry in the U.K. and bury their heads in the sand by not looking overseas for opportunities," said Josceline Percy, a London-based investment analyst at Greg Middleton said.
Percy expects deregulation in worldwide electricity markets to be an on-ging theme. Analysts said PowerGen Plc (PWG-LS), is likely to be the next British firm to move into the U.S.utility market. Indeed, PowerGen has already tried to tap into the U.S. market. During the summer, a proposed link-up between PowerGen and Houston Industries fell through. Percy said it is only a matter of time before PowerGen moves again.
Written By Suzanne Miller