Grid and Lattice in £15bn merger

A NEW British force in the international electricity and gas markets was unveiled as National Grid and Lattice announced a £15bn merger to create the UK's largest utility and the sixth biggest in the world.

In the face of unprecedented overseas assaults on UK utilities - Electricite de France and German giants E.On and RWE have taken London Electricity, Powergen, Innogy and Thames Water - National Grid and Lattice said they were effecting a merger of equals to improve their domestic operations and expand in the US.

The deal offers shareholders in Lattice - operator of the Transco nationwide gas pipeline network - 0.375 shares for every Grid share. That notionally puts a 4% premium on Lattice shares. As Grid stock lifted 15p to 505p, Lattice shares were 19 1/4p better at 192p, 26% higher than they were when demerged from gas explorer BG 18 months ago.

With a market capitalisation of £15bn, the new company, National Grid Transco, will have another £15bn of debt. It expects to increase dividends by 5% a year.

Lattice chairman Sir John Parker becomes chairman of the new group and his Grid counterpart James Ross becomes deputy chairman. The chief executive is Roger Urwin, who holds that post at Grid. His counterpart at Lattice, Phil Nolan, quit for Irish phones company Eircom last year. Lattice finance director Steve Lucas gets the finance post - his Grid counterpart Stephen Box is taking early retirement.

Parker said: 'We are complementary businesses and the timing is right as we are both at the early stages of our new UK price review contracts.'

Urwin, who engineered Grid's expansion in the US North East, notably the £2bn acquisition of Niagara Mohawk, said the UK networks would be ring-fenced from each other. The aim was to acquire US businesses.

He added: 'We have had informal discussions with the Office of Fair Trading and Ofgem. There are no matters of principle that have been raised with us.'

Lattice announced the axeing of 2,500 mainly white collar jobs two months ago, and a further 100 duplicated head office jobs will go, helping projected cost savings rise to £100m a year.

If either side walks away there is a £60m break fee to cover fees of advisers led by Rothschild for Grid and JP Morgan at Lattice.