National Grid plc today announces that it has agreed to acquire PPL WPD Investments Limited, the holding company of Western Power Distribution (WPD), the UK’s largest electricity distribution business, from PPL WPD Limited, a subsidiary of PPL Corporation for an equity value of £7.8 billion and National Grid has agreed to sell The Narragansett Electric Company (NECO) to PPL Energy Holdings, LLC, also a subsidiary of PPL, for an equity value of US$3.8 billion (£2.7 billion).
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 (NGG), the owner of the national gas transmission system.
Together National Grid says 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.
Completion of the WPD Acquisition, which will be funded by fully committed bridge facilities, is expected to occur within the next four months and completion of the NECO Sale is expected to occur before the end of the first quarter of 2022. National Grid expects to launch the sale process for NGG in the second half of this year and complete the sale approximately a year later.
John Pettigrew, chief executive of National Grid, said, “These transactions will be transformational for our UK portfolio. The acquisition of WPD is a one-off opportunity to acquire a significant scale position in UK electricity distribution. WPD has a high quality, fast growing asset base and an excellent track record of customer satisfaction, operational performance and financial returns. We have received a premium valuation for our Rhode Island business and I am confident that we will also deliver attractive shareholder value from the NGG Sale in due course.
“As we move our portfolio to higher growth assets, we have taken the decision to sell a majority stake in NGG. Given the strategic nature of its business coupled with its central position in a transition towards a hydrogen economy, it will continue to play a vital role in the UK’s energy system. We expect strong interest when the sale process begins, likely to be in the second half of this year.”
The WPD Acquisition is a Class 1 transaction under the Listing Rules and is therefore conditional upon the approval of shareholders at a General Meeting. Accordingly, National Grid will shortly publish a shareholder circular containing further details of the WPD Acquisition, a recommendation from its board of directors and the notice of the General Meeting which is expected to be held by the end of April 2021. In addition, the Transactions are conditional on certain regulatory approvals and the NECO Sale is conditional on completion of the WPD Acquisition occurring.