27th Feb 2006 07:03
National Grid PLC27 February 2006 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO CANADA, AUSTRALIA OR JAPAN NATIONAL GRID ANNOUNCES AGREED ACQUISITION OF KEYSPAN NATURAL EXTENSION OF NATIONAL GRID'S BUSINESS • Agreement to acquire KeySpan for cash consideration of approximately $7.3 billion (£4.2 billion) plus assumption of $4.5 billion (£2.6 billion) of debt • Excellent strategic and operational fit with National Grid's existing business and provides enhanced growth platform • Savings of $200 million per year identified • Earnings and cash flow enhancing(1) in the first full year following Completion National Grid and KeySpan today announce that they have reached agreement underwhich National Grid will acquire KeySpan for $42.00 (£24.00) per share in cash.The terms of the agreement value the equity of KeySpan at approximately $7.3billion (£4.2 billion) and the enterprise value of KeySpan at approximately$11.8 billion (£6.7 billion) (including estimated net debt of approximately $4.5billion (£2.6 billion) as at 31 December 2005). KeySpan is a major US energy delivery company. It is the largest distributor ofnatural gas in the Northeastern US and the fifth largest in the US, withapproximately 2.6 million customers in New York, Massachusetts and New Hampshire. In addition, it operates an electricity transmission and distributionsystem serving approximately 1.1 million customers in New York, under a contractwith the Long Island Power Authority (LIPA). KeySpan also owns and operates 6.7GW of generation capacity in New York. Its other assets include investments innatural gas pipeline and storage assets. ACQUISITION BENEFITS KeySpan is an excellent strategic and operational fit with National Grid and anatural extension of National Grid's business. Together with the recently agreedacquisition of the Rhode Island gas distribution assets from Southern UnionCompany, the acquisition of KeySpan will build upon National Grid's successfultrack record in the US. • KeySpan's gas distribution and electricity distribution and transmission businesses operate in states where National Grid already has a presence and where it has strong regulatory relationships. The geographic fit between the two companies will facilitate the implementation of efficiency initiatives across the enlarged Group. • The Acquisition will allow National Grid to deploy its core skills of owning and operating network infrastructure within an incentive-based regulatory environment across a larger rate base. In addition, National Grid will have a stronger US growth platform across itsdistribution business including building on KeySpan's investments in gaspipelines and gas storage. National Grid believes the Acquisition will create significant value and delivera return on invested capital greater than National Grid's cost of capital. It isexpected to be earnings and cash flow enhancing(2) in the first full yearfollowing Completion. National Grid expects to: • Deliver identified integration savings of $200 million per year, through the rationalisation of overlapping functions and the sharing of best practices. • Unlock additional organic growth by investing in KeySpan's gas distribution business. • Invest in other growth opportunities including gas pipelines and storage. GENERATION KeySpan's well managed generation business includes plants on Long Island (4.2GW) which operate under agreements that purchase their full production capacityon a full cost pass through basis. The remaining 2.5 GW of capacity is locatedwithin the constrained New York City 'load pocket'. MANAGEMENT Following Completion, Michael E. Jesanis will continue as CEO of the enlargedNational Grid USA and Bob Catell, Chairman and CEO of KeySpan, will join theBoard as Deputy Chairman of National Grid and Chairman of National Grid USA. FINANCING National Grid intends to finance the Acquisition wholly from borrowings.National Grid expects that its credit ratings post Completion will be downgradedby no more than one notch and it remains committed to its ratings target of an Arange for both of its rated UK operating companies. FINANCIAL RESULTS For the year ended 31 December 2004, KeySpan reported earnings before interest,tax, depreciation and amortisation of $1.5 billion (£0.9 billion) on revenues of$6.7 billion (£3.8 billion), and had net assets of $3.9 billion (£2.2 billion)(3). KeySpan's gas and electricity delivery businesses accounted for 66 percent. of its operating income for the year ending 31 December 2004, and 75 percent. of its assets as at that date. The corresponding figures for generationare 33 per cent. and 17 per cent. respectively. COMPLETION The Acquisition is subject to a number of conditions, including approval byNational Grid's and KeySpan's shareholders as well as certain regulatory andother consents and approvals in the US. The principal regulatory approvalsrequired are from the Federal Energy Regulatory Commission and the states of NewYork and New Hampshire. The Acquisition also requires clearance under USanti-trust and foreign investment laws. National Grid is targeting Completion totake place by early 2007. Sir John Parker, Chairman of National Grid, said: "KeySpan is an acquisition which makes sense at every level. We look forward toits completion and to welcoming Bob Catell to our Board; he brings a wealth ofindustry experience." Roger Urwin, Chief Executive of National Grid, said: "KeySpan is a natural extension of our business and our strategy. It fitsstrategically, operationally and geographically. It will create value and itwill expand our overall growth platform." Steve Holliday, Chief Executive Designate of National Grid, said: "KeySpan creates substantial opportunities for cost savings. In addition, byinvesting in the business, we can unlock its growth potential. All of thisbuilds upon our existing experience and track record." Bob Catell, Chief Executive Officer and Chairman of KeySpan, said: "I am delighted to have reached this agreement to join forces with NationalGrid. The agreement is in the best interests of our shareholders and willprovide significant benefits to our customers, employees and the communities weserve." Rothschild is advising National Grid and Lazard is advising KeySpan. DeutscheBank and Morgan Stanley are brokers to National Grid. This summary should be read in conjunction with the attached announcement. For ease of reference, in this document: (i) all currency conversions betweenpounds sterling and US dollars have been made at a rate of $1.75: £1.00; and(ii) financial information for KeySpan is presented in US GAAP. ANALYST PRESENTATION An equity analyst presentation will be held at City Presentation Centre, 4Chiswell Street, London EC1Y 4UP at 9.30 am (UK time) today. Live telephone coverage of the analyst presentation - password National Grid plc Dial in number +44 (0)20 7081 9429 US dial in number +1 866 432 7186 Telephone replay of the analyst presentation (available until 13 March 2006), Dial in number +44 (0)20 7081 9440 access code 869448 recording number 355761 There will be a debt investor conference call at 12:00 noon UK time. Dial in:+44 (0)20 7162 0025 A live webcast of the presentation will also be available atwww.nationalgrid.com Photographs are available on www.newscast.co.uk ENQUIRIESNational Grid plcEquity InvestorsDavid Campbell +44 (0)20 7004 3170 +44 (0)7799 131 783 (m)Richard Smith +44 (0)20 7004 3172 +44 (0)7747 006 321 (m)James Waite +44 (0)20 7004 3171 +44 (0)7977 440 902 (m) Debt InvestorsMalcolm Cooper +44 (0)20 7004 3340 +44 (0)7770 794 765 (m)Andy Mead +44 (0)20 7004 3369 +44 (0)7752 890 787 (m) MediaClive Hawkins +44 (0)20 7004 3147 +44 (0)7836 357 173 (m) Citigate Dewe Rogerson +44 (0)20 7638 9571Anthony Carlisle +44 (0)7973 611 888 (m) RothschildUK +44 (0)20 7280 5000Nicholas Wrigley Managing DirectorJames Douglas-Hamilton Managing DirectorUS +1 212 403 3500Yves-Andre Istel Senior AdvisorMatthew Savage Managing Director Deutsche Bank AG London +44 (0)20 7545 8000James Agnew Managing Director Morgan Stanley +44 (0)20 7425 8000Nick Wiles Managing Director Cautionary statement This announcement contains certain statements that are neither reportedfinancial results nor other historical information. These statements areforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. Because these forward-looking statements are subject to assumptions,risks and uncertainties, actual future results may differ materially from thoseexpressed in or implied by such statements. Many of these assumptions, risks anduncertainties relate to factors that are beyond National Grid's ability tocontrol or estimate precisely, in particular, the ability to obtain, delays inobtaining, or adverse conditions contained in, regulatory approvals andcontractual consents, the ability to integrate the acquired business or torealise the expected synergies from such integration, the failure for any reasonto achieve reductions in costs or to achieve operational efficiencies, andunseasonable weather affecting demand for electricity and gas. Other factorsinclude competition and industry restructuring, changes in economic conditions,currency fluctuations, changes in interest and tax rates, changes in energymarket prices, changes in historical weather patterns, changes in laws,regulations or regulatory policies, developments in legal or public policydoctrines, the impact of changes to accounting standards, technologicaldevelopments, the failure to retain key management, the availability of newacquisition opportunities or the timing and success of future acquisitionopportunities. Other factors that could cause actual results to differmaterially from those described in this announcement include the behaviour of UKelectricity market participants on system balancing, the timing of amendments inprices to shippers in the UK gas market, the performance of National Grid'spension schemes, and the regulatory treatment of pension costs, and any adverseconsequences arising from outages on or otherwise affecting energy networks,including gas pipelines, owned or operated by National Grid. For a more detaileddescription of some of these assumptions, risks and uncertainties, together withany other risk factors, please see National Grid's filings with and submissionsto the US Securities and Exchange Commission (and in particular the "RiskFactors" and "Operating and Financial Review" sections in its most recent AnnualReport on Form 20-F). Recipients are cautioned not to place undue reliance onthese forward-looking statements, which speak only as of the date of thisannouncement. National Grid does not undertake any obligation to releasepublicly any revisions to these forward-looking statements to reflect events orcircumstances after the date of this announcement. NEWS RELEASE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO CANADA, AUSTRALIA OR JAPAN NATIONAL GRID ANNOUNCES AGREED ACQUISITION OF KEYSPAN NATURAL EXTENSION OF NATIONAL GRID'S BUSINESS 1. Introduction National Grid and KeySpan today announce that they have signed a mergeragreement under which National Grid will acquire KeySpan for cash. Under theterms of the Merger Agreement, KeySpan shareholders will receive $42.00 (£24.00)in cash for each KeySpan share held. The terms of the agreement value the equityof KeySpan at approximately $7.3 billion (£4.2 billion) and the enterprise valueof KeySpan at approximately $11.8 billion (£6.7 billion) (including estimatednet debt of approximately $4.5 billion (£2.6 billion) as at 31 December 2005). KeySpan is a major US energy delivery company. It is the largest distributor ofnatural gas in the Northeastern US and the fifth largest in the US, with sixregulated utilities serving approximately 2.6 million customers in New York,Massachusetts and New Hampshire. In addition, it also operates an electricitytransmission and distribution system serving approximately 1.1 million customersin New York, under a contract with LIPA. KeySpan also owns and operates 6.7 GWof generation capacity in New York. Its other assets include investments innatural gas pipelines and gas storage assets. For the year ended 31 December 2004, KeySpan reported earnings before interest,tax, and depreciation and amortisation of $1.5 billion (£0.9 billion) onrevenues of $6.7 billion (£3.8 billion) and had net assets of $3.9 billion (£2.2billion)(4). Further details of KeySpan's business are set out in Appendix III. The Acquisition is subject to a number of conditions, including regulatory andother consents and approvals in the US and the approval of the shareholders ofboth National Grid and KeySpan. The Acquisition is targeted to complete by early2007. Rothschild is advising National Grid and Lazard is advising KeySpan. DeutscheBank and Morgan Stanley are brokers to National Grid. 2. Attractions of KeySpan 2.1. Leading gas and electricity delivery business KeySpan is a major US utility, focused primarily on gas distribution andelectricity transmission and distribution. It owns and operates six regulatedutilities that distribute natural gas to approximately 2.6 million customers:approximately 1.7 million in New York City and Long Island and approximately 0.9million in Massachusetts and New Hampshire. It is the fifth largest gasdistribution company in the US and the largest in the Northeastern US. Over 90per cent. of its customer base comprises residential and small commercialcustomers. KeySpan also has a contract to operate the electricity transmission anddistribution system owned by LIPA, which serves approximately 1.1 millioncustomers in Long Island. KeySpan and LIPA recently agreed to extend, subject toapproval by the relevant authorities, the contract from 2008 to 2013, providingfurther cost and revenue certainty, and allowing KeySpan to benefit fromenhanced operational efficiencies and synergies, as well as from electric loadgrowth during the life of the contract. KeySpan's gas distribution and electricity transmission and distributionactivities accounted for approximately 66 per cent. of its operating income forthe year ended 31 December 2004. 2.2. Excellent strategic and operational fit The Acquisition considerably strengthens National Grid's presence in theNortheastern US. National Grid USA will be the 3rd largest energy deliverybusiness in the US based on number of customers. KeySpan's energy deliverybusinesses are located in New York, Massachusetts and New Hampshire - stateswhere National Grid is present already and where it has strong regulatoryrelationships. The geographic fit between the two businesses will facilitate theoperation of the enlarged group and increase opportunities for integrationsavings and economies of scale. The Acquisition plays to National Grid's strengths, allowing National Grid todeploy its core skills of owning and operating network infrastructure within anincentive-based regulatory environment and to share best practices between bothbusinesses. The Acquisition is a natural extension of National Grid's business. Togetherwith the recently agreed acquisition of the Rhode Island gas distribution assetsof Southern Union Company, the acquisition of KeySpan will build upon NationalGrid's successful track record in the US. 2.3. Low risk generation portfolio KeySpan owns 6.7 GW of fossil-fuelled generation capacity located in Long Islandand New York City. These well managed and well maintained plants cover some 80per cent. of Long Island's power needs and approximately 25 per cent. of NewYork City's. The Long Island facilities (amounting to 4.2 GW) are used to provide LIPA withgenerating capacity, energy conversion, and ancillary services under long-termcontracts, an extension of which has recently been agreed to 2013 subject to theapproval of the relevant authorities. Under these contracts the rates, which areregulated by FERC, ensure full recovery of costs plus an appropriate rate ofreturn. Some 33 per cent. of KeySpan's operating income from generation for theyear to 31 December 2004 was derived from these fully contracted plants. The remaining 2.5 GW of generation capacity is derived from the Ravenswoodplant, which is located within the constrained New York City "load pocket". Themajority of the plant's revenues are derived from the capacity market and itsdual fuel capability provides flexibility to manage movements in commoditycosts. From May 2006, the NYISO's local reliability rules will require that aminimum of 83 per cent. of the city's electricity capacity needs be provided by"in-City" generators such as the Ravenswood facility. Although National Grid does not currently own any generation assets, the KeySpangeneration assets are low risk and have high quality characteristics. NationalGrid has no current plans to divest this portfolio. 3. Benefits of the acquisition 3.1. Value enhancing transaction National Grid believes that KeySpan represents an opportunity to createsignificant value in its US business from two principal areas. Integration cost savings and improved operating performance National Grid expects to deliver $200m per year of identified integrationsavings through the rationalisation of overlapping functions and the sharing ofbest practices. National Grid projects these savings to be achieved within 4years of Completion, with savings of approximately 50 per cent. of this amountrealised in the first full financial year post Completion. Growth opportunities KeySpan's gas distribution system currently serves 53% of the residentialcustomer base and 61% of the commercial and industrial base in its serviceterritories. Given the low levels of market penetration, particularly in theLong Island and New England markets National Grid believes there is significantopportunity for organic growth in this business. KeySpan recently agreed the extension of the Management Services Agreementwhereby it operates LIPA's electricity transmission and distribution assets. Onapproval by the relevant New York regulatory authorities, the revised contractwill continue in effect until 2013. Under the revised contract, KeySpan willbenefit from load growth on LIPA's electricity networks. The enlarged National Grid business will constitute a stronger platform forfuture growth in the US. Furthermore, the Acquisition will increase NationalGrid's focus on the US gas sector. Combined with KeySpan's investments in gaspipelines and gas storage, the enlarged National Grid USA will be well placed totake advantage of a broader range of future opportunities in the US. 3.2. Financial impact National Grid believes the Acquisition will create significant value and delivera return on invested capital greater than National Grid's cost of capital. TheAcquisition is expected to be earnings and cash flow enhancing(5) in the firstfull year following Completion. The enlarged National Grid group is expected tomaintain strong operational cash flows. 4. Board, management and employees A Joint Integration Committee of National Grid USA and KeySpan, will be set upimmediately to ensure a smooth transition in the period between announcement andCompletion. National Grid's management is confident that the good relationship that has beenestablished between the management teams of KeySpan and National Grid willassist in the negotiation of the regulatory approval process and the subsequentintegration phase. Michael E. Jesanis will continue as President and CEO of the enlarged NationalGrid USA. Upon completion of the Acquisition, Bob Catell, currently Chairman andCEO of KeySpan will join the National Grid Board as Deputy Chairman and willalso become Chairman of National Grid USA. It is anticipated that career opportunities for employees of the enlargedNational Grid group will be enhanced as a result of the Acquisition and bothsets of employees will benefit from potential transfers within the enlargedNational Grid group. National Grid has confirmed that all KeySpan employmentagreements will be honoured. 5. Terms of the Acquisition The Acquisition will be effected in accordance with the terms of the MergerAgreement, a brief description of the principal terms and conditions of whichare set out in Appendix I. Under the terms of the Merger Agreement, KeySpanshareholders will be entitled to receive a cash payment of $42.00 (£24.00) perKeySpan Share held at Completion. The Merger Agreement also provides thatKeySpan shareholders will be entitled to receive ordinary quarterly dividends ofup to 46.50 cents per share (rising to 47.50 cents per share for the quarterlydividend payable after 31 December 2006) until Completion and a stub dividendpro-rated for the quarter in which Completion takes place. The Agreement includes a $250 million break fee payable under certain customaryconditions by KeySpan should certain specified events occur, including ifKeySpan were to terminate the Agreement to accept a superior offer. TheAgreement also includes a break fee of the lesser of $250 million or 1% ofNational Grid's market capitalisation, payable by National Grid to KeySpan ifthe Agreement were to be terminated because National Grid's shareholders did notapprove the Acquisition and, prior to termination, any person publicly announcesan acquisition of National Grid. The terms of the Merger Agreement: • value the equity of KeySpan at approximately $7.3 billion approximately £4.2 billion) and the enterprise value of KeySpan at approximately $11.8 billion (approximately £6.7 billion), including net debt of approximately $4.5 billion (approximately £2.6 billion) as at 31 December 2005. • represent a premium of 16.1 per cent. to the undisturbed price of a KeySpan share(6); a 1.4 per cent. premium to the closing price of $41.41 per KeySpan share on 24 February 2006 (the last trading day in the US prior to the execution of the Merger Agreement); and a 17.1 per cent. premium to the three month average closing price per KeySpan share. 6. Financing the Acquisition Under the terms of the Merger Agreement, the total consideration payable is $7.3billion (£4.2 billion), which will be satisfied in cash. The Board intends tofinance the Acquisition wholly from borrowings. National Grid expects that itscredit ratings post Completion will be downgraded by no more than one notch andit remains committed to its ratings target of an A range for both of its ratedUK operating companies. 7. Approvals 7.1. Shareholder approvals National Grid Because of its size, the Acquisition is subject to approval by a majority voteof National Grid shareholders. The Merger Agreement is conditional upon suchapproval being obtained and the satisfaction or waiver of the other conditionsin such agreement. A circular containing further details of the Acquisition willbe despatched to National Grid shareholders in due course. KeySpan The Acquisition is also subject to approval by the holders of a majority vote ofKeySpan shareholders and the Merger Agreement is conditional upon such approvalbeing obtained. A proxy statement relating to the Acquisition will be mailed to KeySpanshareholders as soon as practicable. The proxy statement will contain a noticeconvening a meeting of KeySpan shareholders at which they will be asked toapprove the Acquisition. 7.2. Regulatory consents and timing The Acquisition cannot be completed until a number of conditions have beensatisfied, which include the granting of regulatory and other consents andapprovals by the US. The principal regulatory approvals required are approval bythe Federal Energy Regulatory Commission together with certain approvals fromthe states of New York and New Hampshire. The Acquisition also requiresclearance under US anti-trust and foreign investment laws. The Acquisition will become effective at the time when a certificate of mergeris delivered for filing with the Secretary of State in the State of New York andis targeted to occur by early 2007. 8. Recommendation The Board of Directors of National Grid, who have received financial advice fromRothschild, considers the Acquisition to be in the best interests of theshareholders of National Grid as a whole. In providing advice to the Board ofDirectors of National Grid, Rothschild has relied upon the Board of Directors'commercial assessment of the Acquisition. Accordingly, the directors unanimouslyintend to recommend that the shareholders of National Grid vote in favour of theAcquisition, as they intend to do so in respect of their own beneficialshareholdings amounting in aggregate to 575,195 ordinary shares, representingapproximately 0.02 per cent. of the current issued share capital of NationalGrid (excluding treasury shares). The Board of KeySpan has unanimously approved the Acquisition and intends torecommend that KeySpan shareholders vote in favour of the resolutions to beproposed at the shareholder meeting of KeySpan to approve the Acquisition.Lazard, which is acting as financial adviser to KeySpan, has provided an opinionto the Board of Directors of KeySpan that the consideration for the Acquisitionis fair from a financial point of view to the shareholders of KeySpan. 9. Other For ease of reference, in this document: (i) all currency conversions betweenpounds sterling and US dollars have been made at a rate of $1.75: £1.00; and(ii) financial information for KeySpan is presented in US GAAP. 10. Analyst presentation An equity analyst presentation will be held at City Presentation Centre, 4Chiswell Street, London EC1Y 4UP at 9.30 am (UK time) today. Live telephone coverage of the analyst presentation - password National Grid plc Dial in number +44 (0)20 7081 9429 US dial in number +1 866 432 7186 Telephone replay of the analyst presentation (available until 13 March 2006), Dial in number +44 (0)20 7081 9440 access code 869448 recording number 355761 There will be a debt investor conference call at 12:00 noon UK time. Dial in:+44 (0)20 7162 0025 A live webcast of the presentation will also be available atwww.nationalgrid.com Photographs are available on www.newscast.co.uk EnquiriesNational GridEquity Investors David Campbell +44 (0)20 7004 3170 +44 (0)7799 131 783 (m)Richard Smith +44 (0)20 7004 3172 +44 (0)7747 006 321 (m)James Waite +44 (0)20 7004 3171 +44 (0)7977 440 902 (m)Debt InvestorsMalcolm Cooper +44 (0)20 7004 3340 +44 (0)7770 794 765 (m)Andy Mead +44 (0)20 7004 3369 +44 (0)7752 890 787 (m)Media Clive Hawkins +44 (0)20 7004 3147 +44 (0)7836 357 173 (m)CitigateDewe Rogerson +44 (0)20 7638 9571Anthony Carlisle RothschildUK +44 (0)20 7280 5000Nicholas Wrigley Managing Director,James Douglas-Hamilton Managing DirectorUS +1 212 403 3500Yves-Andre Istel Senior AdviserMatthew Savage Managing Director Deutsche Bank AG London +44(0)20 7545 8000James Agnew Managing Director Morgan Stanley +44(0)20 7425 8000Nick Wiles Managing Director Cautionary statement This announcement contains certain statements that are neither reportedfinancial results nor other historical information. These statements areforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. Because these forward-looking statements are subject to assumptions,risks and uncertainties, actual future results may differ materially from thoseexpressed in or implied by such statements. Many of these assumptions, risks anduncertainties relate to factors that are beyond National Grid's ability tocontrol or estimate precisely, in particular, the ability to obtain, delays inobtaining, or adverse conditions contained in, regulatory approvals andcontractual consents, the ability to integrate the acquired business or torealise the expected synergies from such integration, the failure for any reasonto achieve reductions in costs or to achieve operational efficiencies, andunseasonable weather affecting demand for electricity and gas. Other factorsinclude competition and industry restructuring, changes in economic conditions,currency fluctuations, changes in interest and tax rates, changes in energymarket prices, changes in historical weather patterns, changes in laws,regulations or regulatory policies, developments in legal or public policydoctrines, the impact of changes to accounting standards, technologicaldevelopments, the failure to retain key management, the availability of newacquisition opportunities or the timing and success of future acquisitionopportunities. Other factors that could cause actual results to differmaterially from those described in this announcement include the behaviour of UKelectricity market participants on system balancing, the timing of amendments inprices to shippers in the UK gas market, the performance of National Grid'spension schemes, and the regulatory treatment of pension costs, and any adverseconsequences arising from outages on or otherwise affecting energy networks,including gas pipelines, owned or operated by National Grid. For a more detaileddescription of some of these assumptions, risks and uncertainties, together withany other risk factors, please see National Grid's filings with and submissionsto the US Securities and Exchange Commission (and in particular the "RiskFactors" and "Operating and Financial Review" sections in its most recent AnnualReport on Form 20-F). Recipients are cautioned not to place undue reliance onthese forward-looking statements, which speak only as of the date of thisannouncement. National Grid does not undertake any obligation to releasepublicly any revisions to these forward-looking statements to reflect events orcircumstances after the date of this announcement. Appendix I - Summary of the principal conditions of the Merger Agreement 1. Introduction Under the terms of the Merger Agreement, a wholly-owned subsidiary of NationalGrid will merge with and into KeySpan, whereby each outstanding share of KeySpancommon stock will be converted into the right to receive $42.00 (£24.00) incash. KeySpan will be the surviving entity in the merger and, as a result of themerger, will become a wholly-owned subsidiary of National Grid USA. The Merger Agreement sets out the conditions to Completion. It also containscertain termination rights, mutual representations and warranties and variouscovenants, including certain limitations on the operation of the business ofKeySpan in the period prior to Completion. 2. Principal Conditions The Acquisition is subject to the fulfilment of several customary conditions,including receipt of the approval of each of National Grid's and KeySpan'sshareholders, receipt of US state and federal regulatory approvals, and therehaving been no material adverse effect on KeySpan since the date of the MergerAgreement. Each of National Grid and KeySpan must use their "reasonable best efforts" toobtain the required regulatory approvals. The principal regulatory approvalsrequired are approval by the Federal Energy Regulatory Commission together withcertain approvals from the states of New York and New Hampshire. The Acquisitionalso requires clearance under US anti-trust and foreign investment laws.Approval may also be required by the Federal Communications Commission and theNuclear Regulatory Commission. It is a condition to Completion that the requiredregulatory approvals do not have a material adverse effect on KeySpan. 3. Termination Rights The Merger Agreement may be terminated by mutual agreement of National Grid andKeySpan. It also may be terminated by either party if a final order, decree orruling restrains the Acquisition, if the other party breaches the agreement suchthat the closing conditions cannot be satisfied (or cured within 30 days), ifeither party's shareholders do not approve the Acquisition, or if theAcquisition has not been consummated by the end date (15 months from the date ofthe Merger Agreement, subject to a three month extension). Additionally, National Grid may terminate the agreement if the Board ofDirectors of KeySpan withdraws or qualifies its recommendation of theAcquisition or accepts another takeover proposal or by KeySpan if, prior to itsshareholder meeting, it accepts a takeover proposal meeting certain conditionsand pays National Grid the required termination fee. 4. Effect of Termination in Certain Circumstances KeySpan is required to make a payment to National Grid of $250 million under thefollowing circumstances: •if National Grid terminates because the Board of Directors of KeySpan does not recommend, or withdraws or qualifies its recommendation of the Acquisition and National Grid terminates the Merger Agreement; •if National Grid terminates because the Board of Directors of KeySpan approves or recommends a competing takeover proposal; •if National Grid terminates because the Board of Directors of KeySpan fails to recommend against a tender or exchange offer commenced for 20% or more of KeySpan capital stock; •if KeySpan terminates because it determined to accept a superior takeover proposal meeting certain conditions prior to its shareholders meeting and National Grid did not adequately improve its offer; or •if the agreement is terminated by either National Grid or KeySpan because the KeySpan shareholder vote was not obtained, or because the end date was reached, and, prior to termination, any person publicly disclosed a takeover proposal for KeySpan. National Grid is required to pay a termination fee to KeySpan equal to thelesser of $250 million or 1% of National Grid's market capitalisation, if theMerger Agreement is terminated because the National Grid's shareholder vote wasnot obtained and, prior to termination, any person publicly disclosed anacquisition proposal for more than 50% of the capital stock of National Grid, orall or substantially all of its assets. Appendix II - Information on National Grid 1. Business description National Grid is an international energy delivery business, whose principalactivities are in the regulated electricity and gas industries. In the UK National Grid owns and operates the high-voltage electricitytransmission network in England and Wales, comprising approximately 4,500 milesof overhead line, approximately 410 miles of underground cable and 341substations. Almost all of the assets comprising the transmission system operateat 400 kV or 275 kV. Since 1 April 2005, National Grid has been responsible foroperating the high-voltage electricity transmission system in Scotland. NationalGrid is also the owner and operator of the gas National Transmission System inGreat Britain, which comprises approximately 4,300 miles of high pressure pipeand 26 compressor stations, connecting to its own and third party gasdistribution networks. Its gas distribution networks comprise almost 50% ofBritain's distribution system, comprising a network of approximately 82,000miles which delivers gas to around 11 million supply points in homes, officesand factories in Britain. National Grid entered the US market in 2000 through the acquisition of NEES andEUA. In 2002, it completed the acquisition of Niagara Mohawk, more than doublingthe size of its US business. These companies now operate as National Grid.National Grid announced a further acquisition, of the Rhode Island gasdistribution assets of Southern Union Company, on 16 February 2006. Thetransaction is expected to complete by the summer of 2006. National Grid USA currently owns and operates approximately 9,000 miles oftransmission lines in upstate New York and New England. It is one of the leadingelectricity distribution service providers in the Northeastern US, as measuredby energy delivered, and one of the largest utilities in the US, as measured bynumber of electricity distribution customers. Its electricity distributionnetwork serves approximately 3.3 million customers over a network of around72,000 circuit miles in upstate New York, Massachusetts, Rhode Island and NewHampshire. National Grid USA's existing gas business delivers gas to around565,000 customers in upstate New York over a network of approximately 8,500miles. The Rhode Island gas distribution assets will increase its gas customerbase to approximately 810,000 customers and its distribution network to over11,500 miles. National Grid also has a number of businesses operating in related areas such aswireless infrastructure for broadcast and telecommunications, metering andinterconnectors. It also operates an LNG importation terminal in the UK. The following information is extracted from National Grid's results for the sixmonths ended 30 September 2005: Group Income Statement (IFRS) Six months Six months Year ended 30 ended 30 ended 31 September 2005 September 2004 March 2005 £m £m £m Group revenue 3,891 3,378 7,382Otheroperatingincome 23 20 70Operating costs (2,870) (2,440) (5,310) --------- --------- --------Operating profit - Before exceptional items and remeasurements 1,091 1,030 2,443 - Exceptional items and remeasurements (47) (72) (301)Totaloperatingprofit 1,044 958 2,142Net finance costs - Before exceptional items and remeasurements (317) (334) (706) - Exceptional items and remeasurements 7 - - (310) (334) (706)Share ofpost-taxresults ofjoint ventures 2 1 3 --------- --------- --------Profit before taxation - Before exceptional items and remeasurements 776 697 1,740 - Exceptional items and remeasurements (40) (72) (301) 736 625 1,439Taxation - Before exceptional items and remeasurements (246) (204) (437) - Exceptional items and remeasurements 11 27 118 (235) (177) (319) --------- --------- --------Profit from continuing operationsafter taxation - Before exceptional items and remeasurements 530 493 1,303 - Exceptional items and remeasurements (29) (45) (183)Profit for theperiod fromcontinuingoperations 501 448 1,120 Profit for the period fromdiscontinued operations - Before exceptional items 44 82 352 - Exceptional items 2,519 (26) (48) 2,563 56 304 --------- --------- --------Profit for theperiod 3,064 504 1,424 ========= ========= ========Attributable to: - Equity shareholders 3,062 504 1,424 - Minority interests 2 - - --------- --------- -------- 3,064 504 1,424 ========= ========= ========Earnings per share - Basic 103.7p 16.4p 46.2p - Diluted 103.1p 16.4p 46.0pEarnings per share from continuingoperations - Basic 16.9p 14.5p 36.3p - Diluted 16.8p 14.5p 36.2pDividends perord. share:paid duringthe period 15.2p 11.9p 20.4pDividend perord. share:approved orproposed to bepaid 10.2p 8.5p 23.7p Group balance sheet (IFRS) At 30 September At 30 September At 31 March 2005 2004 2005 £m £m £mNon current assetsGoodwill 2,140 2,107 2,031Otherintangibleassets 357 337 358Property,plant andequipment 18,175 22,395 22,645Investments injoint ventures 18 19 17Deferred taxassets 280 419 318Otherreceivables 32 108 96Investments 147 135 131Derivativeassets 405 - - --------- --------- --------Totalnon-currentassets 21,554 25,520 25,596 --------- --------- -------- Current assetsInventories 164 158 101Trade andotherreceivables 1,252 1,142 1,193Financialinvestmentsand derivativeassets 2,517 307 398Cash and cashequivalents 547 381 272 --------- --------- --------Total currentassets 4,480 1,988 1,964 --------- --------- --------Total assets 26,034 27,508 27,560 --------- --------- -------- Current liabilitiesBank overdrafts (23) (28) (18)Borrowings andderivativeliabilities (4,025) (3,310) (3,243)Trade andother payables (1,660) (2,029) (2,337)Current taxliabilities (97) (110) (103)Provisions (201) (229) (273) --------- --------- --------Totalnon-currentliabilities (6,006) (5,706) (5,974) --------- --------- -------- Non-current liabilitiesBorrowings andderivativeliabilities (10,476) (11,941) (11,047)Othernon-currentliabilities (1,883) (2,551) (2,429)Deferred taxliabilities (2,170) (3,045) (3,189)Pensions andotherpost-retirement benefitobligations (2,283) (2,493) (2,282)Provisions (551) (453) (518) --------- --------- --------Totalnon-currentliabilities (17,313) (20,483) (19,465) --------- --------- --------Totalliabilities (23,319) (26,189) (25,439) --------- --------- --------Net assetsemployed 2,715 1,319 2,121 ========= ========= ======== Capital and reservesCalled upshare capital 309 309 309Share premiumaccount 1,293 1,283 1,289Retainedearnings 6,085 4,830 5,650Other reserves (4,984) (5,114) (5,137) --------- --------- --------Totalshareholders'equity 2,703 1,308 2,111Minorityinterests 12 11 10 --------- --------- --------Total equity 2,715 1,319 2,121 ========= ========= ======== Net debt (netof relativederivativefinancialinstruments)included above 11,055 14,591 13,638 Appendix III - Information on KeySpan 1. Business description KeySpan is the fifth largest distributor of natural gas in the US and thelargest in the Northeastern US. KeySpan was formed in May 1998 as a result ofthe merger of KeySpan Energy Corporation, the parent company of Brooklyn UnionGas, and certain businesses of the Long Island Lighting Company. On 8 November2000, KeySpan acquired Eastern Enterprises, the parent of several gas utilitiesoperating in Massachusetts and New Hampshire. Following these acquisitions, KeySpan owns six regulated gas utilities servingapproximately 1.2 million customers in New York, approximately 0.5 millioncustomers in Long Island, and approximately 0.9 million customers inMassachusetts and New Hampshire. KeySpan also manages Long Island's electricity transmission and distributionsystem for approximately 1.1 million customers under long term contracts withthe Long Island Power Authority. In addition, KeySpan owns and operates 6.7 GWof oil and gas-fired electric generating plans in New York City and Long Island.Its other assets include investments in natural gas pipelines and gas storageassets. The financial information for the two years to 31 December 2004 has beenextracted from KeySpan's annual report. The financial information for the ninemonths ended 30 September 2004 is extracted from KeySpan's quarterly report forthe period ended 30 September 2005. Consolidated Statement of Income (US GAAP) Year ended 31 Year ended 31 Nine months December 2003 December 2004 ended 30 September 2004 $'m $'m $'m Operatingrevenue 6,536 6,650 5,126 Operating expenses:Purchased gasfor resale 2,495 2,664 2,206Fuel andpurchasedpower 415 540 547Operations andmaintenance 1,623 1,567 1,143Depreciation,depletion andamortisation 572 552 296Operating taxes 418 404 303Impairmentcharges - 41 -Totaloperatingexpenses 5,522 5,769 4,495 Operating income:Income fromequityinvestments 19 47 13Gain on saleof property 15 7 1Operatingincome 1,048 935 645 Total otherincome and(deductions)includinginterest (340) 5 (208)Income taxes 281 326 160Earnings fromcontinuingoperations 426 615 277 Cumulativechange inaccountingprinciples (37)Loss fromdiscontinuedoperations (2) (151) (2)Net income 387 464 275Preferredstock dividendrequirements 6 6 2Earnings forcommon stock 381 458 273Basic earningsper share $2.41 $2.86 $1.62 Consolidated balance sheet (US GAAP) At 31 December At 31 December At 30 September 2003 2004 2005 $'000 $'000 $'000AssetsCurrent assets 2,387 3,079 2,953Investmentsand other 249 273 243Property 8,894 7,068 7,228Regulatoryassets 578 555 484Deferredcharges andother assets 2,532 2,389 2,406 --------- -------- -------- 14,640 13,364 13,314 --------- -------- --------Liabilities and capitalisationCurrentliabilities 1,852 2,282 1,709Deferredcredits andotherliabilities 2,913 2,735 3,288 --------- -------- --------Totalliabilities 4,765 5,017 4,997 --------- -------- -------- Total commonshareholders'equity 3,671 3,895 4,388Preferred stock 84 20 -Long-term debtand capitalleases 5,611 4,419 3,915 --------- -------- --------Totalcapitalisation 9,365 8,333 8,302 --------- -------- --------Minorityinterest inconsolidatedcompanies 510 14 15 --------- -------- --------Totalliabilitiesandcapitalisation 14,640 13,364 13,314 --------- -------- -------- Appendix IV - Definitions The following definitions apply throughout this press release unless the contextrequires otherwise: "Acquisition" the acquisition of KeySpan by National Grid pursuant to the Merger Agreement;"Business Earnings from continuing operations before exceptional items andPerformance" intangible asset amortisation;"Completion" the closing of the Acquisition following satisfaction or waiver of the conditions attaching to the Acquisition and the delivery of a certificate of merger for filing with the Secretary of State in New York;"EUA" Eastern Utilities Associates;"GW" Gigawatt, 109 watts;"KeySpan" KeySpan Corporation;"KeySpan holders of KeySpan shares;shareholders""KeySpan shares of KeySpan;shares""Lazard" Lazard Freres & Co. LLC;"LIPA" Long Island Power Authority;"LNG" Liquefied natural gas;"Merger the Agreement and Plan of Merger entered into between NationalAgreement" Grid, National Grid US 8 Inc., a wholly owned subsidiary of National Grid, and KeySpan;National Grid National Grid plc;National Grid National Grid's wholly owned US subsidiary, National Grid USA,USA Inc.;"NEES" New England Electric System;"Niagara Niagara Mohawk Power Corporation;Mohawk""NYISO" New York Independent System Operator;"Rothschild" N M Rothschild & Sons Limited and Rothschild Inc.;"SEC" the US Securities and Exchange Commission;"UK" the United Kingdom;"US" the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia, and all other areas subject to its jurisdiction;and"$" US dollar. -------------------------- (1) On a Business Performance basis. (2) On a Business Performance basis. (3) US GAAP. (4) US GAAP (5) On a Business Performance basis. (6) The closing price of a KeySpan share on 16 February 2006, the last day priorto KeySpan's announcement that it was in discussions with various partiesregarding potential strategic combinations. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
National Grid