National Grid Transco said today that it had sold four gas distribution networks to consortia for £5.8 billion.
Pledging to return cash to investors, Transco proposed a one-off return of £2 billion, equivalent to 65p per share, and a 20 per cent increase in the ordinary dividend this year after the sale to Scottish & Southern Energy PLC, United Utilities PLC and Hong Kong’s Cheung Kong. Thereafter, Transco is targeting dividend growth of 7 per cent per annum until 2008.
Shares in the company gained around 3 per cent before falling back to trade flat on a falling market.
WestLB raised its stance on the stock to “neutral” from “underperform” with an increased price target of 480p from 420p. Meanwhile, Merrill Lynch reiterated its “buy” rating on the utility group, saying the sale price implied a premium to regulatory asset value of around 10 per cent.
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The gas and electricity firm said the deal - which also includes £130 million of assumed liabilities - would mean it would remain by far the largest UK gas distributor. The company said that the reshaped business would enable it to cut costs more effectively and pledged to return capital to investors.
Sir John Parker, chairman of National Grid Transco, said: ‘Having secured premium values, the board has no hesitation in announcing a substantial return of capital and a further increase in the dividend. The fact that these sales will also bring customer benefits makes this a positive outcome for all parties.’
National Grid runs the electricity wires across the UK while Transco, formerly part of British Gas, runs the UK’s gas pipe network.
The North of England gas distribution network is to be sold to a consortium led by Cheung Kong Infrastructure Holdings Led and including United Utilities for £1.4 billion.
The Wales & the West distribution network is to be sold to a consortium led by the Macquarie European Infrastructure Fund, a wholesale fund managed by a member of the Macquarie Bank Group, for £1.2 billion.
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The South of England and Scotland distribution networks are to be sold to a consortium comprising Scottish and Southern Energy, Borealis Infrastructure Management Inc and Ontario Teachers Pension Plan for £3.2 billion.
In addition to West Midlands, London and East of England, NGT will retain the North West distribution network. With approximately 11 million business and home consumers, NGT will have the largest gas distribution business in the UK.
The Transco board said its reshaped business would be in better shape to achieve the 35 per cent reduction in controllable costs targeted by 2006/07.
In addition to the return of capital to shareholders and increase in dividend, Transco said the asset sale would enable it to repay around £2.3 billion of its debt.
Analysis: Cooking on gas