WESTBOROUGH, Mass. and SYRACUSE, N.Y., Sept. 5, 2000 — National Grid Group plc and Niagara Mohawk Holdings Inc. have signed a merger agreement under which National Grid will acquire Niagara Mohawk through the formation of a new National Grid holding company, New National Grid, and the exchange of Niagara Mohawk shares for a combination of American Depositary Shares (ADSs) and cash.
National Grid, one of the U.K.’s 50 largest companies and the world’s largest independent electric transmission company, builds, owns and operates electric and telecommunications networks around the world. Niagara Mohawk is the second largest combined electric and gas utility in New York State.
Niagara Mohawk is National Grid’s third U.S. acquisition, after New England Electric System (NEES) and Eastern Utilities Associates (EUA), which were both acquired earlier this year.
The combination will create the ninth largest electric utility in the U.S. with an electric customer base of approximately 3.3 million. With Niagara Mohawk, National Grid will own and operate the most extensive transmission network (by miles) and be the second largest distribution business (by power delivered) in the New England/New York market.
Niagara Mohawk will continue to operate under its current name and will keep its operating headquarters in Syracuse. Upon completion of the transaction, Niagara Mohawk will become a wholly-owned subsidiary of National Grid and be re-branded “Niagara Mohawk, a National Grid Company.”
Under the terms of the transaction, Niagara Mohawk shareholders will receive consideration of $19.00 per Niagara Mohawk share, subject to the dollar value of five National Grid ordinary shares being between $32.50 and $51.00. In the event that the dollar value of five National Grid ordinary shares is greater than $51.00, the per share consideration received by Niagara Mohawk shareholders will increase by two-thirds of the percentage of the increase in value over $51.00.
If the dollar value of five National Grid ordinary shares is less than $32.50, the per share consideration received by Niagara Mohawk shareholders will decrease by two-thirds of the percentage of the decrease in value below $32.50.
Shareholders can elect to receive their consideration either in cash or ADSs, or a combination of both, subject to the aggregate cash consideration offered being at least $1.0 billion. If cash elections received from Niagara Mohawk shareholders exceed $1.0 billion, National Grid has the option to increase the cash element of the consideration. The terms of the merger agreement value the equity of Niagara Mohawk at approximately $3.0 billion (2.1 billion pounds sterling) and the enterprise value of Niagara Mohawk at approximately $8.9 billion (6.1 billion pounds), including net debt of $5.9 billion (4.0 billion pounds) as of June 30, 2000.
The transaction is expected to be accretive to National Grid’s earnings per share after the amortization of goodwill in the first full financial year after completion of the acquisition, and should substantially enhance National Grid’s cash flow per share immediately following the completion.
Through merger-related cost synergies and sharing of best practices, National Grid expects to achieve annual cost savings of approximately $90 million across New England and New York operations, representing some 10 percent of the enlarged group’s electric controllable cost base. These savings are expected to be achieved within four years of the merger’s completion, with approximately 50 percent of these savings achieved in the combined company’s first full financial year.
The transaction is expected to be completed by late 2001, subject to a number of conditions, including regulatory and other governmental consents and approvals, the sale of Niagara Mohawk’s nuclear facilities or other satisfactory arrangements being reached, and the approval of Niagara Mohawk and National Grid shareholders.
David Jones, National Grid chief executive said, “This acquisition builds perfectly on our successful North American strategy. It builds on both the platform we have created in New England and our top quality U.S. management team. With Niagara Mohawk, we double the size of our U.S. business and reinforce our position as a leading player in the Northeast-a region that is clearly at the forefront of the industry’s restructuring in the U.S.
“Niagara Mohawk’s management team has managed the critical issues related to purchase power contracts and industry restructuring over the last several years, which resulted in lower delivery costs for customers,” Jones continued. “This work, along with its focused transmission and distribution business and depth of regional knowledge and experience, makes Niagara Mohawk an attractive partner to National Grid as we expand our U.S. business.”
Jones concluded: “Our ten years of experience operating a transmission system in a competitive environment strengthens our ability to provide services that will benefit customers in today’s rapidly changing U.S. energy markets. We look forward to bringing our experience to New York, and to continuing to contribute to the current debate on the restructuring of the U.S. transmission sector.”
William Davis, chairman and chief executive of Niagara Mohawk, who will become chairman of National Grid USA and will join the National Grid board of directors as an executive director for two years after the completion of the acquisition, said, “We are delighted to be joining forces with National Grid to become an important part of one of the largest and most efficient energy delivery companies in the world.
“This transaction is in the best interests of our shareholders, and will yield significant benefits for our customers, employees and the communities we serve. Direct savings and sharing of best practices will create an even more efficient company, leading to lower delivery costs and enhanced customer service, making upstate New York a more attractive region for economic growth.”