In addition, National Grid announces that it will commence a process later this year for the sale of a majority stake in National Grid Gas plc, the owner of the national gas transmission system ("NGG") (the "NGG Sale").

Together these transactions will:

-- strategically pivot National Grid's UK portfolio towards electricity. The proportion of the Group's assets in electricity will increase from c.60% to c.70%;

-- strengthen National Grid's long-term growth outlook by ensuring a significant scale position in electricity distribution through the acquisition of WPD, the UK's largest electricity distribution business. Electricity distribution is expected to see a high level of asset growth as a result of the ongoing energy transition;

-- significantly enhance National Grid's central role in the delivery of the UK's net zero targets, given the complementary nature of transmission and distribution, providing benefits for customers;

-- deliver shareholder value as the transactions are expected to be significantly earnings accretive from year one, generate a return in excess of National Grid's cost of capital and, taken together with the proposed NGG Sale, continue to be earnings accretive in the longer term;

-- underpin National Grid's 5 to 7% asset growth target for longer, further supporting National Grid's updated dividend policy to deliver annual dividend per share growth in line with UK CPIH inflation, while expecting to maintain its current overall strong investment grade credit rating;

-- maintain the Group's geographic and regulatory diversity, with c.40% of the Group assets in the US after the sales of NECO and stake in NGG;

-- generate attractive shareholder value through the sales of NECO and a majority stake in NGG; and

-- ensure management continuity and focus: the CEO and CFO of WPD will lead the UK distribution business as part of the enlarged Group. National Grid, recognising the importance of WPD to the communities it serves, intends to maintain the WPD headquarters in Bristol and offices in other key locations.


   2.         Information on WPD and NECO 

WPD

WPD is the UK's largest electricity distribution business with its four distribution network operators ("DNOs") delivering electricity to approximately 7.9 million customers and employing over 6,500 staff. WPD's network comprises approximately 90,000 kilometres of overhead lines, 135,000 kilometres of underground cable and 188,000 transformers.

At 31 March 2022, the total regulated asset value ("RAV") of WPD is projected to be approximately GBP8.8 billion having grown by approximately 5% per annum through the first regulatory price control process known as RIIO-ED1.

Net debt of the WPD Group at 28 February 2021 was GBP6,413 million.

NECO

NECO is the largest electricity transmission and distribution service provider to, as well as a natural gas distribution company in, Rhode Island, USA, with over 700 employees and serving approximately 780,000 customers.

At 31 March 2020, the rate base of NECO was approximately US$2.6 billion, comprising approximately US$1.8 billion distribution and US$0.8 billion transmission.

Net debt of NECO at 31 December 2020 was US$1,396 million.


   3.         Reasons for the Transactions 

The board of directors (the "Board") considers the WPD Acquisition and NECO Sale to be a compelling opportunity for the following key reasons:


   --      The WPD Acquisition allows National Grid to bring together two complementary businesses 

The WPD Acquisition allows National Grid to bring together two complementary businesses which have a shared vision of being at the heart of driving the delivery of clean, fair and affordable energy for the future.

-- WPD represents a one-off opportunity to establish a significant scale position in UK electricity distribution, enhancing National Grid's key role in the delivery of net zero carbon emissions

The acquisition of WPD represents a compelling one-off opportunity for National Grid to reposition its UK portfolio towards a critical element of delivering decarbonisation to the UK.


   --      WPD and electricity distribution will add significant growth potential to National Grid 

Evolution in energy use by end consumers is likely to result in increased demand for electricity which will in turn require significant investment in electricity networks. Adding WPD to the Group's portfolio will secure access to this potential pool of growth in electricity distribution, with its high quality assets well positioned to take advantage of these sectoral trends.


   --      WPD has a track record of excellent performance 

WPD has a high quality asset base and was the only DNO group to be 'fast-tracked' by Ofgem in the last regulatory price control process known as RIIO-ED1. In addition, WPD is consistently a top-performing DNO group for overall customer satisfaction.


   --      WPD has a highly experienced management team and excellent stakeholder engagement 

WPD has a highly experienced management team supported by over 6,500 employees. WPD has also demonstrated excellent stakeholder engagement, with the business rated first in the industry by Ofgem for eight consecutive years, for its approach to social obligations and stakeholder engagement.

-- The NECO Sale is a key differentiator for the WPD Acquisition, with National Grid retaining flexibility to pursue its targeted growth agenda

The NECO Sale is a key differentiator for the WPD Acquisition. National Grid will retain flexibility to fund additional growth opportunities at competitive rates, which underpins its asset and dividend growth, whilst enabling the Group to maintain an efficient capital structure.


   4.         Sale of majority stake in NGG 

NGG owns, manages and operates the national gas transmission network in Great Britain. At 31 March 2020, NGG had approximately 7,630 kilometres of pipeline and a workforce of nearly 2,200 employees.

At 31 March 2020, the RAV of NGG was approximately GBP6.3 billion.

As well as the national gas transmission network, NGG owns National Grid Metering, which generated an operating profit of GBP158 million in the year to March 2020.

National Grid expects to launch a sale process for a majority stake in NGG in the second half of 2021 and complete the sale in the second half of 2022. The Board anticipates significant buyer interest given NGG's high-quality operations, proven delivery, the strategic nature of the business, its regulatory certainty following the RIIO-T2 determination and the key role that the network will have to play in the energy transition.

The Board believes the proposed sale to be the right decision for shareholders as whilst NGG is a strongly cash generative, profitable and mature business, the sale will enable National Grid to focus on higher growth assets, whilst maintaining a strong balance sheet.


   5.         Financing of the WPD Acquisition and use of proceeds of the NECO Sale 

The WPD Acquisition will initially be funded by bridge financing facilities (the "Acquisition Facilities") in the amount of GBP8.25 billion to finance the acquisition of WPD and refinancing of certain WPD debt. This will then be repaid over time, from the proceeds from the NECO Sale and the NGG Sale and the issue of new senior debt and hybrid capital securities, as appropriate.


   6.         Key terms of the Transactions 

WPD Acquisition

National Grid Holdings One plc ("National Grid Holdings"), National Grid Plc and PPL WPD Limited ("PPL WPD") have entered into a sale and purchase agreement (the "WPD SPA") pursuant to which PPL WPD has agreed to sell, and National Grid Holdings has agreed to acquire, the entire issued share capital of PPL WPD Investments Limited.

Completion of the WPD Acquisition is conditional upon (a) approval by National Grid's shareholders of the resolutions at the General Meeting, and (b) certain regulatory approvals being received by the date that is three months from signing, or such later date as the parties approve (the "Long Stop Date"), subject to two two-month automatic extensions under certain circumstances. Completion is not conditional on approval from the Competition and Markets Authority although National Grid will be making a voluntary filing.

The consideration for the WPD Acquisition is GBP7.8 billion in cash to be settled at completion. The consideration is subject to a locked box mechanism and accordingly there is a daily ticking fee payable by National Grid Holdings of GBP548,000 per day from 1 January 2021 until completion, reflecting the dividends that would otherwise be payable by WPD during such period; PPL WPD will also receive a dividend of GBP140 million from PPL WPD Investments Limited, relating to dividends in respect of 2020 not already paid.

National Grid Holdings has agreed to pay a termination fee of US$150 million to PPL WPD if the WPD Acquisition does not complete in circumstances where the Board changes its recommendation (an "Adverse Recommendation Change") in respect of the resolutions. National Grid Holdings has agreed to reimburse the expenses of PPL WPD up to a maximum of US$50 million in the event that the resolutions are not passed at the General Meeting where an Adverse Recommendation Change has not occurred.

The WPD SPA may be terminated if an Adverse Recommendation Change has occurred or the conditions are not satisfied by the Long Stop Date.

National Grid Holdings has obtained warranty and indemnity insurance which, following Completion, will be the sole recourse for any claim in respect of the warranties given by PPL WPD in the WPD SPA, subject to limited exceptions.

NECO Sale

National Grid USA, PPL Energy Holdings, LLC ("PPL Energy") and PPL Corporation have entered into a share purchase agreement in respect of the NECO Sale (the "NECO SPA") pursuant to which National Grid USA has agreed to sell, and PPL Energy has agreed to acquire, 100% of the outstanding shares of common stock of The Narragansett Electric Company.

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