National Grid Plc, the British owner of electric utilities in New York and Massachusetts, agreed to buy KeySpan Corp for US$7.3 billion in cash, an acquisition that almost doubles the number of US customers it serves.
National Grid will pay US$42 for each KeySpan share, the London-based company said yesterday in a statement. That is 16 percent more than the New York-based firm's share price on Feb. 16, the day before KeySpan said it was in talks. It's 1.4 percent higher than the closing stock price last Friday.
Mergers among utilities have accelerated in the past year as companies seek to expand their geographical reach or offer more services. Brooklyn, New York-based KeySpan has 2.6 million gas customers that will be added to National Grid's operations, which include the former Niagara Mohawk and Massachusetts Electric.
"Overlap allows you to cut costs pretty quickly," said Greg Phelps, who oversees US$5 billion for John Hancock Advisers in Boston, which owns shares of KeySpan. "It's the beginning of a trend," he said.
US utilities have returned to a focus on regulated businesses since the collapse of Enron in 2001 and are now attractive to potential buyers, he said.
National Grid shares rose 1.4 percent to 622 pence at 8:07am London time. The stock is up 24 percent in the past year.
The acquisition will increase the contribution from the US to National Grid's operating profit to more than 50 percent from about 40 percent now, said Steve Holliday, who will become the company's chief executive officer at the end of the year.
The purchase quadruples National Grid's gas distribution business in the US and will make it the No. 3 power and gas supplier there.
National Grid will also assume US$4.5 billion of KeySpan debt and expects savings of US$200 million per year, it said yesterday.
Consolidated Edison Inc, the electric utility in New York City, was also negotiating for KeySpan, people briefed on the matter who asked not to be identified, said earlier.
"The stock has been stuck in the low US$30 range without a catalyst for moving higher," Phelps said. "As a shareholder, I'd be inclined to vote for the deal."
National Grid said on Friday that it was negotiating an all cash acquisition of KeySpan. The UK company this month also agreed to buy a Rhode Island gas distributor from Southern Union Co for US$498 million.
Last year, US$236 billion of utility industry takeovers were announced, almost double the US$122 billion in 2004, according to data compiled by Bloomberg.
Suez SA and Gaz de France SA said yesterday they plan to merge, a combination that would create the world's second-biggest power and gas supplier and fend off a possible hostile bid for Suez by Italy's Enel SpA.
Germany's E.ON AG on Feb. 21 offered to buy Endesa SA of Spain for 29.1 billion euros (US$34.6 billion), topping a hostile approach from Gas Natural SDG SA.
In the US, FPL Group Inc, Florida's biggest utility owner, agreed in December to buy Constellation Energy Group for about US$12 billion to obtain nuclear power plants. Chicago-based Exelon Corp is buying New Jersey's Public Service Enterprise Group for $16.2 billion.
"The market for utilities is heating up," Barry Abramson, who helps manage US$33 billion at Gamco Investors in Rye, New York, said last week.
His company owns shares of KeySpan, Consolidated Edison and National Grid.
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