Doubling its presence in the U.S. utility market, the UnitedKingdom’s National Grid Group Plc agreed yesterday to buy NiagaraMohawk Holdings Inc. for $8.9 billion in cash, stock and assumeddebt. The U.K. power producer plans to merge Niagara with twoMassachusetts utilities acquired earlier this year, boosting itsU.S. customer base to more than 3.2 million.

National Grid agreed to pay $19 per share for the Syracuse,N.Y.-based utility, about 47% more than its closing price Aug. 31.The deal includes $1 billion in cash, $2 billion in stock and theassumption of about $5.9 billion in debt. The total price is aboutthree times Niagara’s book value, and shareholders will receivecash and shares in New National Grid, which was formed solely toacquire Niagara.

Because National Grid expects a lengthy regulatory review, itdoes not expect to close on the deal before the middle of 2001.Along with regulatory approvals, shareholders from both companiesalso will vote on the acquisition.

The U.K. power producer, with holdings in England and Wales, boughtthe New England Electric System of Westborough, MA for $4.7 billion incash and assumed debt last March (see Daily GPI, March 23). In April, it paid $1.03 billionin cash and assumed debt for Eastern Utilities Associates of Boston.

The two New England utilities supply electricity and gas tocustomers in Massachusetts, Rhode Island and New Hampshire. Niagarais the second-largest electricity transmission and supply companyin New York, with 1.6 million electricity customers and 540,000 gascustomers.

Up to 700 jobs would be lost from Niagara when it is merged withthe other two U.S. utilities to create the ninth-largest electricutility in the United States, according to National Grid CFOMichael Jesanis.

Niagara nearly declared bankruptcy in 1997 because of contractsmandated by the State of New York that forced the utility to buyelectricity from independent power producers above market rates. NewYork regulators then allowed Niagara to refinance or buy out nearly $6billion of the contracts in 1998 and the company was restructured (seeDaily GPI, Aug. 7, 1998). Niagara hasbeen selling its power plants to concentrate on delivering electricitythrough its 24,000-square-mile transmission network, which is thelargest in the State of New York.

Niagara Mohawk’s stock closed at 15 and _, up 1 7/8 yesterday.

National Grid CEO David Jones said that he’s aware of Niagara’sunderwhelming performance compared with other utilities, and blamedit on the problems with the power purchase contracts three yearsago. However, he said that now that the contracts have beenrenegotiated, Niagara has a “stable future.” He called the buyout’stiming “ideal.”

National Grid was formed in 1990 as part of the U.K. government’splans to sell the electricity industry to the public. It owns andoperates overhead lines and underground cables in England andWales. Earlier this year, it had expressed an interest in buying GPU,the U.S. utility being wooed by FirstEnergy of Ohio (see Daily GPI, Aug. 8). However, analysts said thatNational Grid was not interested in GPU’s overseas assets.

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