Enlarge imageBy Sudip Kar-Gupta
LONDON (Reuters) - National Grid Transco has agreed to sell half its gas distribution assets for 5.8 billion pounds, raising money to return to shareholders and invest in growing U.S. markets.
The deal further opens up Britain’s gas network, first sold off by the government in 1986, and was welcomed by industry regulator Ofgem, which hopes competition will drive down prices for customers.
National Grid
But National Grid, which plans to return 2 billion pounds to shareholders, will remain Britain’s biggest gas distributor with 11 million business and domestic customers.
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National Grid had put the networks up for sale to cut debt and raise cash for investment in areas such as the United States, although many investors had also hoped for a return of capital.
"We would certainly wish to participate in any (U.S.) consolidation," Chief Executive Roger Urwin told reporters.
The company added it would increase the dividend for the current year by 20 percent, and would thereafter target dividend growth of 7 percent a year until 2008.
National Grid shares were up 0.3 percent to 465 pence in mid-morning trade. The stock had risen 8 percent in August on anticipation of the sale.
"The price is very good, and the decision to rebase the dividend is also pleasing. At the moment, the market is looking for companies with solid dividend yields," said Colin Morton at Rensburg Fund Managers, which owns National Grid shares.
WIDESPREAD INTEREST
The auction -- details of which were flagged last week in a Reuters report -- attracted widespread interest in the industry, as the assets would boost the electricity generation capacity of a utility firm.
A consortium led by Cheung Kong Infrastructure Holdings and United Utilities is buying the north-of-England network for 1.4 billion pounds. The deal helps Cheung Kong diversify away from stagnant home markets.
A consortium including Scottish & Southern will buy the south-of-England and Scotland networks for 3.2 billion pounds. Borealis Infrastructure and Ontario Teachers’ Pension Plan were in this consortium.
Macquarie Bank will buy the Wales and west England network for 1.2 billion pounds. Utility assets are attractive to banks as it offers them reliable cash-flows.
United Utilities shares were up 0.5 percent at 550 pence, while Scottish & Southern shares rose 0.1 percent to 739 pence.
Scottish & Southern said the acquisitions would make it Britain’s second largest energy distribution company, and added that the deal would boost its earnings.
Britain is not alone in having a fragmented gas network.
Germany also has a very fragmented gas market with five large gas import companies selling gas into local networks which are owned by hundreds of municipal utilities.
Britain’s gas regulator Ofgem had long been involved in the sale process. Ofgem has consistently been in favour of having several independently managed networks, as this would make it easier to compare prices for customers.
National Grid said its capital return was equivalent to 65 pence a share.
Dealers said the company’s joint house broker Cazenove had kept an "outperform" rating on National Grid, and added that Cazenove had increased its fair value target on National Grid to 505 pence from 490 pence.
Credit Suisse First Boston -- National Grid’s other house broker -- also raised its price target to 482 pence from 467p.
Investment banks Rothschild and Morgan Stanley acted as joint financial advisers to National Grid. Cazenove and JP Morgan also worked on the deal with National Grid.
Deutsche Bank advised Cheung Kong, while Dresdner Kleinwort Wasserstein and Lexicon advised SSE.
