National Grid PLC (LON:NG.) has bolstered its position in UK’s electricity power supply network with the acquisition of Western Power Distribution (WPD) for £7.8bn.
US-owned WPD is the UK’s largest local distributor and its acquisition is part of a switch in focus solely towards electricity said the UK utility.
As part of that process and later this year, National Grid said it intends to sell its majority stake in National Grid Gas PLC, which owns the UK’s national gas transmission system.
The WPD acquisition will see the proportion of National Grid’s assets in electricity rise to 70% from 60% currently, something that reflects an expected high level of asset growth as the country switches to greener more sustainable sources of power, it said.
National Grid's role in the delivery of the UK's net-zero targets will also get a boost, it added, given the complementary nature of transmission and distribution.
Distribution companies take electricity from the high-voltage transmission wires (run by National Grid) and deliver it at lower voltages to businesses or to the front door.
As part of the deal, National Grid is selling the Rhode Island-based Narragansett Electric Company (NECO) to PPL Energy Holdings, the vendor of WPD, for £2.7bn.
John Pettigrew, National Grid’s chief executive, said: “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."
National Grid added it expects the transactions 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".
The deal will also underpin the the new dividend policy to deliver annual dividend per share growth in line with UK CPIH inflation, said the utility.
Completion of the WPD acquisition, which will be funded by loans, is expected to occur within the next four months with the NECO sale expected to occur before the end of the first quarter of 2022.
“Establishing National Grid as the leading electricity transmission and distribution operator in the UK will strengthen our long-term growth prospects, enhance our role in the UK's energy transition and drive long-term shareholder value,” added Pettigrew.